How Rising Interest Rates Will Impact Affordability

How Rising Interest Rates Will Impact Affordability

In a recent Forbes blog post, multimillionaire hedge fund manager John Paulson declared that today’s record-low interest rates made this the best time to buy homes in fifty years. “If you don’t own a home, buy one,” Paulson said. “If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home.”  Why should we care what Paulson thinks? Well, he was among the few to accurately predict the subprime collapse and, while no one has a crystal ball, a closer look at the numbers supports his call to action.

Historically low interest rates are the key…and they aren’t likely to hang around for long.

As we wrote in SHIFT, buyers who “choose to wait until prices come down more” are gambling that interest rates will hold steady or drop. The truth is even a 10 percent drop in home prices is nullified by a 1 percent increase in interest rates. The figure below illustrates how this works for a $250,000 home purchase and the relative likelihood of each scenario.

To figure out which was a smarter bet–counting on home prices to fall further or interest rates to rise–our research department took the last ten years of monthly home price and mortgage interest rate data and ran the numbers to see which was more likely: an increase in mortgage rates or a further drop in home prices. Here’s what we found:

  1. A one percent increase in mortgage rates is ten times more likely to happen than a ten percent drop in home prices.
  2. A one percent rate increase more than offsets a ten percent reduction in home prices.
  3. When interest rates fall by one percent, the total interest paid is almost three times more than the interest savings from a ten percent drop in home prices.
  4. The probability of both happening at the same time is ridiculously small, and homeowners would still pay 15 percent more in interest over the life of the loan.

Interest rates have dominated the news in recent months as we’ve shattered record low after record low. Potential home buyers need to understand the positive financial impact low interest rates have on the cost of home ownership and the thousands of dollars that can be saved over the life of a typical mortgage loan. For those who can afford to buy, trade up, or invest, our current market presents a lifetime opportunity.

It is COLD out there.

As I write this, it is currently five degrees fahrenheit in Nashville, Tennessee. Good grief. Anyway, I wanted to quickly note that, if you have ever visited this page in the past, you may discover some minor edits recently. You are quite observant if you did.

Anyway, I am not accepting law clients at this time. My hands are full elsewhere. Stay warm!


Feliz Navidad!!

For purposes of updating anyone to stumble upon this page, here is an updated post.  I have been quite busy as of late practicing real estate, rather than law.  In fact, I have been working “overtime,” so to speak.  I am affiliated with Keller Williams Realty Nashville-Green Hills, and real estate IS my new career.

I will continue to maintain my law license and practice law as an avocation, rather than a vocation.  I find the law much more appealing that way.  I enjoy helping people whenever and wherever I can.  I will, therefore, not be actively seeking clients for the law practice at this time.  I will continue, however, to “sharpen the saw” academically.  I remain capable of providing excellent personal legal services for the disabled.

Therefore, should you find yourself on this page and a bit confused, hop on over to and take a test drive.  If you have any questions, give me a shout.


I am an attorney practicing exclusively in Social Security Disability. Recently, I started a solo practice in Nashville, Tennessee.  If you need help in any aspect of your disability claim, please do not hesitate to contact me.  I am available for a free consultation. In fact, I can come to you if needed or speak over the phone.  If we mutually agree to commence representation, any attorney’s fee will be contingent on your approval for disability.  In other words, I don’t get paid unless you get paid.

Unlike many other disability practices in the area, I will not be practicing “volume” business and will handle each case personally.  Therefore, you can expect detailed attention and consideration in all aspects of your claim.

Give me a call at (615) 920-9483 and let’s talk about your case.