Industry NewsOpinion

High-priced home builders to lose buyers

Guest perspective: Rising interest rates could price out 61% of this market
Published on Feb 18, 2004

The economy continues to expand, so builders are now wondering if the Fed will raise rates, causing mortgage rates to rise. Interestingly, we conducted a sensitivity analysis and found that builders of higher-priced homes are far more vulnerable to rising rates than entry-level builders. While entry-level buyers are highly impacted by mortgage-rate changes, we found that high-priced home builders are even more exposed to mortgage-rate risk right now. We analyzed how a mortgage-rate increase from 5 percent to 9 percent would affect the number of households that would qualify for a $250,000 home as opposed to a $750,000 home. Here are our findings: $250,000 Homes – Most of the United States' 110 million households (60 million or 54 percent of total households) can qualify for a home priced at $250,000, assuming a 5 percent mortgage rate and 20 percent down payment. If rates rose to 9 percent, almost 22 million households (36 percent of those who originally qualified) would be "...

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