8% Interest Rates, Then and Now
Interest rates are up around 8% for a mortgage now, the last time this happened was in 2000. The median home price in 2000 was about $120,000 and the median home size was 2077 square feet. In 2023 the median home price is $410,200 and the median home size is 2,333 square feet. The average house price in Ohio in 2000 was $103,700 but is now about $220,000.
What About Columbus Ohio?
According to realtor.com the median home price in Columbus, Ohio is currently $285,900 at a median price of 1528 square feet. The U.S. Department of Housing and Urban Development (HUD) indicated in a report that the average home price was around $132,000 in 2000 for Columbus Ohio.
The typical debt-to-income ratio a lender is looking for in a home mortgage is 36% of gross income, although some will go to 43% or 49% in very specific circumstances. If a new home buyer wishes to buy an average home in Columbus, and opt to put 3% down they would pay on average $2692 for a mortgage monthly (assumed PMI is 1%, taxes at $4000 a year, and home insurance at $1200 a year). The down payment would be around $8500. To qualify for this loan at a 43% debt-to-income ratio the household income would need to be around $75,125. That is assuming the individual has no student loans, no car payment, nor any credit card balances. If we assume credit payments monthly of $500 a month towards any other credit the household income would need to be around $89,000.00. The median household income in Columbus, Ohio is $58,575.
To fit these same standards for a house in 2000, a household would need to make around $37,000 with no other credit payments or about $50,000 with additional credit payments of $500 a month. The median household income in Columbus in 2000 was about $41,000.
A high credit score would minimize PMI payments and allow for slightly lower interest rates. Increasing the amount of down payment would also help to keep payments down.
Home prices have more than tripled nationally since the last time rates were at 8%, but in Columbus the house prices have not increased as drastically as they have nationally. Although house sizes in Columbus are a bit smaller than the median house size nationally, which accounts for some of why house prices have not tripled. While I do think house prices will receive some market correction due to a 40 year historic low in mortgage applications, it likely will not be noticed much in Columbus, Ohio in my opinion. Columbus still has room to grow to catch up with national averages and with major industry coming into the Columbus market, it is doubtful any market correction will last long in Columbus.
Drew McDaniel, 11/13/2023