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“We’re waiting for interest rates to come down.”
It’s something I hear regularly, and I understand. Interest rates matter. They affect affordability, monthly payments, and how much home a buyer can purchase.
But here’s something I’ve been thinking about.
While we’ve been waiting for interest rates to change, what has happened to our buying power? And what opportunities might we have missed?
Let’s look at the numbers.
WHAT COULD $1,200 A MONTH BUY?
Using a 30-year fixed-rate conventional mortgage with 20% down, here’s approximately how much home a $1,200 monthly principal-and-interest payment could support at three different points in time.
OCTOBER 2018
Interest rate: 4.86%
Approximate home price: $283,931
OCTOBER 2022
Interest rate: 7.08%
Approximate home price: $223,652
OCTOBER 2026
Interest rate: 7.32%
Approximate home price: $218,363
Between October 2018 and October 2022, purchasing power dropped by approximately $60,000.
But look at the next four years.
Between October 2022 and October 2026, purchasing power declined by only about $5,300.
That’s what caught my attention.
For four years, many potential buyers have been waiting for interest rates to return to levels we enjoyed in the past.
And while they’ve been waiting, their buying power, based on these mortgage rates, hasn’t changed nearly as dramatically as it did during the preceding four years.
Of course, home prices have changed, too, and these calculations don’t account for those changes. But the interest-rate comparison is worth considering.
WHAT COULD THOSE FOUR YEARS HAVE MEANT?
Let’s imagine someone purchased a home in October 2022 using our $1,200 monthly principal-and-interest example.
Their original mortgage would have been approximately $178,922.
After four years of regular payments, they would have paid down approximately $8,000 in mortgage principal.
That’s $8,000 less debt and $8,000 more ownership equity from principal reduction alone.
And that’s without assuming their home increased in value.
Now consider someone paying $1,200 per month in rent.
Over those same four years, they would have paid $57,600 in rent.
Those payments provided a place to live, and there’s certainly value in that. But they didn’t build ownership equity.
Would purchasing have been the better financial decision for everyone? Absolutely not.
Homeownership requires a down payment, closing costs, property taxes, insurance, maintenance, and other expenses. Home values can also decline.
But for someone who was financially prepared to purchase in 2022, those four years could have been an opportunity to begin building equity instead of continuing to wait.
Sometimes the money we spend waiting could have been working toward something we wanted.
WHAT IF YOU ALREADY OWN A HOME?
Maybe you’re thinking, “That’s interesting, Toni, but I’m not giving up my 3% mortgage!”
I understand that, too!
But let me ask you something.
Does your home still fit your life?
Your family may have grown. Your needs may have changed. Perhaps you’re working from home, need another bedroom, or are ready to downsize.
That low interest rate is valuable. But so is having a home that works for the way you live today.
And don’t overlook the equity you may have accumulated in your current home.
Depending on its value and what you still owe, you may have more purchasing power than you realize.
Does that mean moving is automatically the right decision? No.
But it might be worth exploring before assuming it’s impossible.
WHAT ABOUT REFINANCING?
If interest rates eventually decline, refinancing may provide an opportunity to reduce a homeowner’s monthly payment.
That could potentially free up money for savings, remodeling, home improvements, or even that dream addition.
But we don’t know when rates will decline, how far they’ll fall, or whether refinancing will make financial sense for a particular homeowner.
A home purchase should be affordable under today’s circumstances, not dependent on tomorrow’s possibilities.
If refinancing becomes a beneficial option later, consider it a bonus.
SO, IS WAITING THE RIGHT DECISION?
Sometimes it absolutely is.
Maybe you’re saving money, improving your credit, paying down debt, or preparing for a major life change.
Those are good reasons to wait.
But sometimes we become so focused on waiting for the perfect interest rate that we forget to consider what the waiting itself might cost us.
Four years is a long time.
Children grow. Families change. Housing needs evolve.
And while we’ve been waiting for interest rates to improve, the numbers suggest that purchasing power hasn’t changed nearly as much over the last four years as some might expect.
The cost of waiting isn’t always measured in dollars. Sometimes it’s measured in the years we spend putting our plans on hold.
I’m not suggesting everyone should rush out and buy a home.
I’m suggesting that if you’ve been thinking about making a move, whether it’s your first home, a larger home, or something smaller, perhaps it’s time to revisit the possibilities.
Find out what your current home is worth. Talk with a lender. Explore the market.
You may decide that waiting is still your best option.
Or you might discover that you’ve been waiting for something you could have been enjoying all along.
Toni Derry, REALTOR® | ABR
ERA Crossroads Real Estate
574-377-1529
Helping to make dreams of Home Ownership a Reality.
SOURCES & CALCULATION NOTES
Mortgage-rate figures used for comparison:
October 25, 2018: 4.86%
October 27, 2022: 7.08%
October 22, 2026: 7.32%
Calculations assume a 30-year fixed-rate conventional mortgage, 20% down, and a $1,200 monthly principal-and-interest payment. The four-year principal-reduction example assumes 48 regular payments.
Illustrations exclude property taxes, insurance, maintenance, HOA fees, closing costs, and other ownership expenses. Rates are national survey averages, not individual loan offers. Actual home prices, loan terms, and financial outcomes vary.
