# Much Lower Price But 1% Higher Rate = Higher Total Payment

We had a borrower yesterday express reluctance to buy because there is “so little inventory” that he thinks he will “inevitably end up over-paying in a bidding a war.”

We had two responses. First, we think the chances of housing prices coming down again, if and when there is an inventory surge, are slim to none. And secondly, even if prices do happen to come down, if rates are higher the borrower will be worse off in any case.

Our borrower is looking in the \$750,000 price range. If he bought a property today with 20% down, his entire housing payment (PITI) would be about \$3,550. (Assumes \$750,000 price; 20% down; rate of 3.5%; property taxes of 1.25%; insurance of \$80.)

If the price for the same house drops by \$50,000 to \$700,000, but rates are up by 1%, a 20% down purchase will yield a total payment (PITI) of about \$3,650. (Assumes \$700,000 price; 20% down; rate of 4.5%; property taxes of 1.25%; insurance of \$80.)

If prices stay the same, but rates jump 1%, the borrower’s total housing payment will jump to about \$3,900. (Assumes \$750,000 price; 20% down; rate of 4.5%; property taxes of 1.25%; insurance of \$80.)