In case you’ve missed it, interest rates are really low right now and pricing is at levels that haven’t been seen in quite some time. I’ve prepared a simple analysis that shows you what this means for your purchasing power.
1) Pricing has bottomed and price increases will return to our historical average of inflation. Let’s assume inflation stays around 3.0% for the next two years.
2) Interest rates return to 5.0% over a two year period. This is where rates were pre-recession. (Bankrate.com)
If these two scenarios happen, you’ll need to earn 23% more in two years to buy the exact same house that you could buy today (See table).
The question is, will your income go up by 23% in two years?
|Now||Next Year||The Year After|
|Price Grown at Inflation||$150,000||$154,500||$159,135|
|Years of Mortgage||30||30||30|
|Pricple & Interest Payment||$694.67||$760.05||$854.27|