Interest Rates, Affordability and The Real Estate Market Right Now

Housing costs remain below the historical average - for now.

Housing costs are on the rise, but still below the historical average.

Affordability Key

The rebounding real estate market has stabilized housing prices and increasing equity for home owners. 2014 is shaping up to be a great time to own a home. For potential home buyers, meanwhile, low interest rates have been helping to make the dream of home ownership a reality.

Interest rates are currently less than half of what they were 25 years ago in 1989.  This means that even though the median home price since 1989 has paralleled price increases in other areas – including food, gasoline and automobiles – homeowners are paying significantly less per month (after adjusting for inflation) for the same home.

Real Estate Affordability then and now

Real Estate Affordability Comparison Items

Since we must consider interest rates as well as prices when looking at the real estate market, it is possible to find a market state that benefits both sellers and buyers. Happily, we are in just such a situation right now. For sellers, a low housing supply – particularly in the Vail Valley – will bring a higher price. For buyers, low interest rates add up to lower monthly payments and, ultimately, less money spent overall.

How long is this sweet spot for buyers and sellers going to last? It’s hard to say.  One of the biggest factors contributing to today’s low interest rates is the Federal Reserve’s current policy of “quantitative easing,” a policy that the Fed has being taking steps to scale back, or “taper,” since December of 2013. When and if tapering will lead to a spike in interest rates is unknown. Such a spike could hurt sellers as well as buyers, as the increasing cost of loans brings down the prices buyers are able to afford.

Laurance Yun, chief economist for the National Association of Realtors, has said that mortgage rates are projected to rise above five percent by the end of the year. In the same article, Yun and NAR president Steve Brown note that some markets are already facing affordability issues.

Brown also offered a reminder once again that most of the important considerations in any real estate market are local:

“The national figures provide useful background, but it really gets down to supply and demand in a given neighborhood,” Brown said. “This is why it’s best to consult with a Realtor®, who has additional resources and can provide much greater detail on specific locations.”

If you are planning on buying or selling Vail Valley real estate, give the Rocky Mountain Home Team a call at 970-306-7711 to learn how our systems can be your solutions!

Graphics courtesy of Keller Williams Vision 2014.


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