From the WSJ article, excerpts.
“Housing can remain affordable by historical standards even if interest rates rise,” wrote Goldman Sachs economists Hui Shan and Marty Young in a research note this week. They say interest rates, given the recent half-percentage point rise, don’t change their expectation for home prices to rise by 4% to 5% annually over the next few years.
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Goldman runs an exercise that shows just how affordable housing is, even if rates rise. They assume the typical homebuyer has an annual household income of $50,000, pays a 20% down payment, and obtains a 30-year fixed-rate mortgage. At an interest rate of 3.8%, the average homebuyer can afford a house worth $279,000, which is 45% above the current median sales price of previously owned homes. Even if interest rates rise to 6%, homes would still be affordable to this median borrower because prices are still so low.
Rising rates “will likely slow the strong house price appreciation observed over the past year, but the impact will likely be modest given the cushion provided by the high level of housing affordability at present,” the Goldman economists write.
