What Happens to Park City Home Prices When Interest Rates Rise?

On Monday, two real estate agents were on KPCW talking about the current market around Park City. One comment caught our attention. It was said that while supply of homes were low, this hadn’t caused prices to increase in some areas of the Snyderville Basin. The example was given that the average home price was about $750K in Jeremy Ranch but there were only 10 homes for sale. They said this was unusual because low supply typically increases prices. The reason that this wasn’t occurring, according to the agents, was that people can’t get a mortgage for more than that amount.

They also said mortgage rates were near all-time lows.

That got us to thinking… what happens when mortgage rates start to rise? Generally when rates rise, people can afford “less house.” If someone buys a $500,000 home, with a 3.5% mortgage rate, that’s a monthly payment of $2,245 (excluding taxes, insurance, etc.). Let’s say they can afford that monthly payment. However, if rates rise to 5%, they can only buy a $419,000 home (if they can still only afford $2,245 a month). Given that scenario, that top-end $750,000 house quoted by the agents would need to be priced at $630,000 for people to afford it.

That said, if wages rise along with interest rates, then perhaps people can spend more and offset the higher rates. If not, it doesn’t bode well for everyone from our real estate agents to our government agencies that depend on property taxes.

The Federal Reserve has said they will stat raising rates in 2015 (most people think late this year). So, it should be interesting to watch how this impacts our area.