What Really Drives a Mortgage Payment?

There are two parts to every mortgage payment:

1. Interest rate

2. Home price (loan amount)

Interest rates get all the attention, but home prices have quietly become the real issue.

Let’s look at the facts.

Interest Rates Are Back to Normal

Over the past 30–40 years, the average 30-year fixed mortgage rate has typically hovered between 6% and 7%.

That’s almost exactly where rates are today.

In other words, we’re not experiencing high interest rates—we’re experiencing historically average interest rates.

Home Prices Are the Real Outlier

While interest rates are normal, home prices are anything but.

Prices are at all-time highs, well above long-term trends when adjusted for inflation and wage growth. This decoupling from economic fundamentals has created an affordability crisis in many parts of the country.

Over the past few years, prices were pushed up by:

• Ultra-low interest rates (which are now gone)

• Pandemic-driven demand

• Limited housing supply

Now, even with rates at average levels, the combination of sky-high prices and stagnant wages has made homeownership unattainable for millions.

Where Do Prices Go From Here?

That depends on the market.

• In regions like the Midwest, prices are still relatively affordable and more stable.

• But in the South and West, prices have run too far ahead—and we’re already seeing declines.

Examples:

• Some parts of Florida and Texas are down 10% or more

• Austin has dropped over 20%

• A continued decline of 10% per year over the next 3–4 years could bring prices back to sustainable levels

And that may be exactly what’s needed.

What This Means for Real Estate Investors

This shift presents both opportunities and risks for investors. Here’s how to navigate it:

✅ 1. Focus on Price, Not Just Rates

You don’t need to wait for the Fed. Instead, seek out discounted or undervalued properties, especially in markets that are correcting.

🛡 2. Be Cautious in Overheated Markets

If you’re investing in places like parts of Texas, Florida, or the West Coast, account for the potential of further price declines. Avoid overpaying and make sure the deal cash flows from day one.

💸 3. Don’t Bank on Appreciation

Speculative investing won’t work in a market facing a correction. Focus on cash flow and stable demand, not future equity that may take years to materialize.

📊 4. Track Income & Employment Trends

Rising unemployment and declining wages can directly impact both rent collections and property values. Pay close attention to local economic fundamentals when selecting markets.

The Bottom Line

This isn’t a mortgage rate crisis—it’s a pricing crisis.

Housing has become unaffordable not because rates are high, but because prices are unsustainably inflated in many areas.

For investors, the message is clear:
Buy smart. Focus on value. Stay disciplined.

A long-overdue price correction may already be underway—and those who understand the bigger picture will be positioned to take advantage and jump on opportunities quickly.