View attachment 35818
The monetary base tracks the FED's balance sheet where they bought $4+ trillion in mortgage back securities and US treasury debt injecting that amount of money into the banking system. As you can see, there is about a 2 year lag of injecting money (printing money) and home prices increasing.
The FED is now contracting the money supply and raising interest rates.
What's the effect on home prices after 2 years?
To understand how government-influenced interest rates, capital flows, and financing rates affect property values, you should have a basic understanding of the income approach to real estate values. Although real estate values are influenced by the supply and demand for properties in a given locale and the replacement cost of developing new properties, the income approach is the most common valuation technique for investors. The income approach provided by appraisers of commercial properties and by underwriters and investors of real estate-backed investments is very similar to the discounted cash flow analysis conducted on equity and bond investments.
- $240,000 x 80% at 4.5% interest equals a payment of $972.84
- $226,260 X 80% at 5.0% interest equals a payment of $971.65
- $214,062 X 80% at 5.5% interest equals a payment of $972.34
- $202,500 X 80% at 6.0% interest equals a payment of $971.27
- $192,188 X 80% at 6.5% interest equals a payment of $971.80
You can see that a 2% increase in an interest rate would lose you about $50,000 of purchasing power in this price range. If you doubled the sales price, you would lose about 100,000 of purchasing power for a 2% spread in interest.
