Real Estate News: Do Interest Rates Drive Home Prices?


 Q.       “Do Interest Rates Drive Home Prices?”

 A.        This is a common myth.

 Interest rates are only a very small part of the equation, with home-prices primarily driven by other factors.  This is how I think about the market:  The key to housing is that homes are a leveraged asset, meaning that people do not pay the full purchase price of a home out of pocket.  This gives home-owners the ability to “upgrade” homes as home prices increase – creating a self perpetuating cycle.  This is easiest to see in an example:

 Let’s say someone buys a $100k house with 20% down.  This means they have $20k of equity in the home and an $80k mortgage.  If home prices rise by 10%, the homeowner now has a $110k home, with an $80k mortgage, leaving $30k of equity.  At the same 20% down, the home-owner can sell their home and “upgrade” to a $150k house (most homes are purchased with proceeds of a different home sale)!  With mortgage insurance and low down payment requirements, this cycle becomes even more robust.  At 5% down, that same 10% increase in home prices would allow the homeowner to move from their $110k home into a $300k home! As home prices continue to rise, this process is repeated, increasing demand at higher and higher prices.

 This cycle will continue so long as the homeowner can 1) afford the new higher mortgage payment and 2) can get a mortgage.  For this we track the National Association of Realtors Homebuyer Affordability Index (HAI), which tracks whether the median household has enough income to qualify for a mortgage on a median priced home (if it is above 100, the median homebuyer has more than enough income).  Interest rates impact this measure, but so do housing prices, household incomes etc.  The way I like to think about Homebuyer Affordability Index, is that it doesn’t drive the cycle, but it is a good barometer of whether higher costs will stall the cycle. (HAI Index attached).

 So far I’ve talked about how rising home-prices are a self-perpetuating cycle where higher home prices increase the equity people have in their homes, increasing the demand for more homes, driving prices even higher.  The same principal however holds on the way down.  Declining home prices decrease the equity homeowners have, decreasing their ability to buy a home or move, decreasing demand for homes and driving prices even lower. 

 When we think about this principal in aggregate it’s clear that we have a cycle where home price appreciation drives more home price appreciation, until either access to credit, or costs are too high, then the cycle reverses and home prices fall for the same reason.

 The decline in prices is ultimately slowed as people paying down their mortgages, and cash buyers begin to increase demand at the new low price levels… and the cycle repeats.  Interest rates and mortgage rates are only a small piece of the cycle, driving a portion of affordability.

 But there is more:

 On top of the normal housing cycle is a credit cycle.  What this means is that lenders typically are more liberal with their lending when loans are doing well.  So as home prices are rising, you get very few defaults or losses to the mortgage owners as borrowers who are in trouble can simply sell their home at a profit.  This entices lenders to make more loans at even more liberal terms, lower down payment requirements etc. 

 The same principal holds as home prices decline: borrowers can no longer “cash out” of trouble, meaning more mortgages go delinquent and lenders take losses.  Lenders then tighten their lending standards, stop offering home equity lines, demand higher down payments etc.  This credit cycle overlaid on what is a naturally cyclical asset exacerbates cycles making home price swings even greater and lending them even more momentum.

 Today, home affordability is coming down, but remains well above historical averages, home prices have been increasing (hence increasing demand) and lenders are becoming more liberal with their lending standards.  Hence we have a continued rise in home prices.

 This housing theory gives us a lot of other interesting insights, for instance the price of ‘starter homes’ often leads the cycle both on the way up and on the way down.  This is because a change in the price of starter homes drives demand for each market segment higher in the market.  The price of starter homes is driven by both supply of these homes as well as incomes (and savings) of young first time home-buyers, and so the income of 25-35 year olds becomes an important leading indicator of housing (my personal theory is that this is why home prices in San Fran are outperforming the national average). Housing markets are of course very segmented and geographically independent, so while all of this makes sense in aggregate, different regions will be at different stages of the cycle, or being driven by overarching economic drivers that drown out the impact of the housing cycle (i.e. Detroit).

 So, you see, there isn’t, necessarily, a strong link between rising home prices and rising interest rates.  Because so much of the economy is housing dependent, rising home prices can drive economic growth (and falling prices slow it), this can in turn drive an increase in interest rates.  But it is definitely not a direct relationship.  At best it is a casual, not causal relationship.

 Attached is a graph tracking the average 30-year Mortgage Rates versus the Case-Shiller Index

compared with the Home Affordability Index.   

 I don’t see any relationship, do you?

  The Burch-Mudry Team                                                          


 Private Offices at the Hawthorne Inn-Concord





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We have a very powerful Search App to offer you. It has Nation-Wide search capabilities.

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The Burch-Mudry Team

Keller Williams Realty Boston Northwest

Gregory Burch: 978-505-2979

Marilyn Mudry : 978-505-0614



Private Offices at the Hawthorne Inn-Concord

462 Lexington Road- Concord-MA



Keller Williams Realty Boston Northwest is in the top 1% of all offices in Massachusetts  and sold more homes than any other office in the Acton, Concord, Sudbury market area in 2013!



Our Life- A thank you.

Our Life: Bound to a space: 9 rooms, our home, another 9 rooms, the home of others, briefly.

An acre and a half of glorious New England Land bordered by the Millbrook, by the home of the Hawthorne’s and the Alcott’s; this sliver owned by them and by Emerson…HD Thoreau surveying : all of the Transcendentalists touching the soil on which we live.

We are contained , in our created environment, welcoming so many [we have added Syria and Rwanda to our list of guests] but, only, physically, for in this space, we have been truly Blessed to have shaken hands, to have laughed to have shared joys and sorrows and stories with so many and, most importantly, to have offered respite.

The most amazing thing is: as we have, hopefully, honored those who have crossed our threshold, they, too, have honored us by doing so.

We are held in the hearts of many and, in Prayer, we Thank those who have left our so wonderful Town of Concord, Our Inn, with Joy and Happiness and Memories to reflect upon.

I wish that we had taken of photo of every guest and wrote a brief line to remember them by …we have not.
Nevertheless, these notes are held in another place. Somewhere deep in hearts.

I wish that we had held a hand a bit more tightly; said Thank-you a bit more emphatically; listened a bit more intently.

Our lives, these 37 years, have been Blessed no more or less than any other.

God is with each of us.

Our path was to have meet many Gracing our Table.
Our circle was/is large.

Remember, the dance happens in intimacy and in broadness. The dance that is this Life, that is over, ‘just like that’!

Honor one another [even if you really do not want to].
Listen, too, to each other.
Play music that you Love and Dance alone, with another, but Dance and Sing and close your eyes when you look at Beauty [in a Sky, in reflecting water, in orchards ripe, at a lost person asking, wordless, for a path to wholeness].

Close your eyes and move and feel and take in beauty and pray that you can remember joy and love and serenity and beauty when times get tough; when your world feels like it is falling apart.

Prayer and connection.

And, a kind word really does means more than we shall ever know.

Many, in my life, amaze me by their humility and generosity and kindness.

I thank the many tens of thousands whom have allowed us excellent food on our table, the means to gift our three children the most amazing education: gifted us a good life.
We are so fortunate to be Innkeepers of our Inn.We are so fortunate to be Innkeepers of our Inn


Hawthorne Inn Welcomes Red Chair

Red Chair at Old North Bridge 3Red Chair Orchard House 5Red Chair visits the Minute Man statueRed Chair at Old North Bridge of 1775 fame-where was fired the Shot Heard Round the World-Red Chair re-visits Walden PondRed Chair Hillside Burial Ground 5Red Chair overlooks Concord centerRed Chair at  Old Manse- lived in by Hawthorne and EmersonRed Chair Caesar Robbins House 1                 A simple red wooden chair has been elevated to celebrity status, and is being welcomed at Inns and B&Bs as it travels throughout New England. The Red Chair has been sighted in Concord where it was a guest of the Hawthorne Inn. The chair passed several enjoyable days visiting the historic sites of Concord for photo opportunities.

Chinese Chews

Grammy Annie's Chinese Chews

Grammy Annie’s Chinese Chews

An Old Family Recipe and Everybody’s Favorite Treat


            ½ cup sugar

            ½ cup butter

           3   eggs

           1   teaspoon vanilla

           1 cup chopped walnuts                                                                    

           1 cup chopped dates

           1 cup flour

          Dash salt


                 Mix together: sugar and butter well

                 Add:  eggs and vanilla and mix well

                 Mix in flour and salt

                 Stir in walnuts and dates


               Bake at 350 in a buttered pan.  Do not Overcook!!!!!

               When cool, cut into squares and roll in confectionery sugar.

Winter Calendar of Special Events

Lower Garden

Visit the Hawthorne Inn of Concord
this winter and enjoy the fresh air of the country and the vibrant air of
culture. We have it all: Hike around Walden Pond,
catch an art exhibit and enjoy fine dining out and an after dinner conversation
by our fireside.




Here are a few events on our
calendar for 2013.




January 12- De Cordova
Sculpture Park
Snowshoe Tour.


Take a guided tour of the Sculpture
Park, the largest in New
England,  after a snowshoe
lesson by a trained Eastern Mountain Sports (EMS) instructor. Cost includes
instruction, a tour, and admission to the Sculpture Park
and Museum.




January 27- April 21- PAINT
THINGS: beyond the stretchers


PAINT THINGS navigates the recent direction of contemporary
artists to expand painting beyond the stretcher into sculptural forms. This
group exhibition focuses on the growing spatial and material freedom in
painting as it merges with installation and sculpture. Featured artists include
Claire Ashley, Katie Bell, Sarah Braman, Sarah Cain, Alex Da Corte, Cheryl
Donegan, Franklin Evans, Kate Gilmore, Alex Hubbard, James Hyde, Sean Kennedy,
Wilson Lawrence, Steve Locke, Analia Saban, Allison Schulnik, Jessica
Stockholder, Mika Tajima, and Summer Wheat.




February 10- Romance at the
Old Manse


The Old Manse has seen both
happiness and heartbreak over the centuries. As we celebrate Valentine’s Day,
join us for a special romantic tour to learn about Harriet and Ezra Ripley,
newlyweds Nathaniel and Sophia Hawthorne, and more – with musical interludes
led by “Nathanial Hawthorne” himself at 1PM and 3PM.


Built in 1770 for patriot
minister William Emerson, The Old Manse, a National Historic Landmark, became
the center of Concord’s
political, literary, and social revolutions over the course of the next




March 7- Brian Donahue at the Concord Museum-
Farm to Lectern Speakers Series – bringing nationally-recognized agrarian
activists to Concord


An environmental historian,
farmer, and collaborator on the
“New England Good Food Vision 2060”, Brian
Donahue is Associate Professor of American Environmental Studies at
Brandeis University. Author of The Great
Meadow: Farmers and the Land in Colonial Concord
and Reclaiming the
Commons: Community Farms and Forests in a New England Town
(on the Concord
Reads booklist), he co-founded and for 12 years directed Land’s Sake, a
nonprofit community farm in Weston, Massachusetts. 7:00 p.m. at Concord Museum; free, by reservation,
978-369-9763, ext. 216


April 6, 13-15- Patriot’s
Day Celebrations 2013


Each year thousands of people
flock to historic Lexington and Concord to celebrate Patriot’s Day,
commemorating the opening battle of the American Revolutionary War on April 19,
1775. Many events are offered; including Parades, Battle re-enactments, a Ball and Colonial
Life demonstrations.

Patriot’s Day 2012

Tower Hill Botanic Garden

Established in 1842, the Worcester County Horticultural Society established Tower Hill Botanic Garden as a 132 acre showcase of ornamental, edible and Native New England plants. The indoor Orangerie and the lofty Limonaia are provided with imports and exotics that provide a year-long riot of color and rich scent. We recently visited for the 183 annual Camellis Show. Tower Hill will host an African Violet show in April 2012 and May will bring a Seven-State Daffodil and Primrose competition.

16th Annual Family Trees: A Celebration of Children’s Literature

 From November 23, 2011 through January 1, 2012,
the Museum’s galleries are filled with 36 fanciful trees of all shapes and
sizes, decorated with original ornaments inspired by acclaimed children’s
storybooks and contemporary picture book favorites.

The exhibition’s focus on children’s literature makes Family Trees unique among the many
holiday events in Greater Boston. Each tree serves as a canvas for the artistic
creations of a dedicated team of volunteer decorators. Inspired by the
storyline, the illustrations, the characters or setting of a particular book,
the decorators let their imaginations take flight, much to the delight of
visitors of all ages from all over New England.
Selections for this year include: Ladybug
Girl, b
y Jacky Davis and David Soman; The Snow Queen, retold by Sarah Lowes, illustrated by Miss
Clara; Bats at the Ballgame, by
Brian Lies; Little Women, by
Louisa May Alcott ; Strega Nona’s Gift,
by Tomie dePaola; The Polar Express, by
Chris Van Allsburg; and many others.

Apple Picking

We took a short drive out to Harvard Massachusetts for an outing of apple picking. The yield was incredible, the colors vivid and the taste juicy and sweet. We now have a moist Apple Cake on the breakfast menu. The Town of Harvard is also the location of “Fruitland”, Bronson Alcott’s communal living experiment. You cane visit the museum, Shaker homes and American Indian gallery.