What year am I talking about?

A nice house in a metropolitan area was $80,000, and a more modern larger house was $110,000.

Gasoline costs $1.19/gallon. Minimum wage was $3.15/hour. A gallon of milk costs $1.30/gallon

Home mortgage interest rates were around 13.75%

The average family income was $21,200.

In today’s market, we hear agents stating that their buyers are waiting for interest rates to drop. On social media, as well as news broadcasts, there is whining and complaining about how high the interest rates are, which is why the real estate market has slowed.

Yes, the market, right now (early October) is slower than 3 months ago. 3 months ago, average temperature was 103 degrees, the kids were on summer break and buyers were looking for property.

Now, again, early October, it is still hot, in the 90s, kids are now back in school, and a good portion of the real estate salespersons are back to work, after going to upstate AZ, San Diego, northern Michigan or Canada. Summer is always slower in Arizona.

Interest rates this morning were 6.46% for a 30-year fixed rate, and 5.87 % for a 15-year fixed rate. That means that rates have hardly fluctuated in the prior 6 months. 

In the 1950’s during a housing boom after WWII, the average interest rate was 5.1%.  A new house costs $6,000. Ask your parents or grandparents what their house cost and what interest rate they paid in the 1940s and 1950s.

The questions up top, what year? That was 1980.

Unlike gas, milk, wages and other common goods, which have steadily escalated in cost, home mortgage interest rates have stayed relatively stable. Yes, the late 1970s and early 1980s were an exception. But on a 50-year chart, 1970 to 2020, the average home mortgage interest rate was 7.33%.

Interest rates today are below the 50-year average. So why are buyers sitting on the fence? 

Follow this example. We have a $750,000 sale, with a $600,000 loan.

At today’s rate, 6.46%, the annual payment is $52,044

If the rate drops 1 point, to 5.46%, the annual payment is $44,424

The difference between waiting for the rate to drop 1 point is $7,620 per year. Yes, the buyer saves that amount in the year.

BUT let’s consider the house which they wished to purchase for $750,000. How much should the value change in one year? While it is impossible to predict, in the short term of 1 year, that houses might increase 4.22 percent in value (national 30-year average value increase), or $31,658

Again, no one has the crystal ball. Year to year, home prices in the Phoenix Metro area are down 1.5%, from July 1, 2024, to June 30, 2025 (Tucson was up 2.1% for the same date range, and Flagstaff was up 2.6% from August 1, 2024, to July 30, 2025) Of course, a lot depends on who is providing the statistics and how they are calculated.

If we look at year to year, in 2019-2020, the numbers are vastly different, with gains much different, (Phoenix was up 30.1%, Tucson was up 9.2% and Flagstaff was up 10.3%)

By waiting the one year, while the buyer would save $7,620 with a lower payment, the cost of house increased almost $32,000 if it is still on the market.

Bottom line, by waiting for the rates to drop, the value of homes will typically increase. So, while your buyer wants to see the rate drop by 1 point, they will probably pay more for the house they want to buy when they decide to buy it. They will end up paying more while waiting.