fbpx

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.

Assumptions:

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
Interest Rate 3.75% 4.25% 5.00%
Pricple & Interest Payment $694.67 $760.05 $854.27
9% 23%