In 1982, the median-priced existing home required a monthly payment of $702. In October 1988, the median-priced home required only $588 a month to carry. This is a story about the impact of interest rates _ and it is only beginning. The 1982 house cost $67,800, the 1988 house cost $88,100. That is, the lower-priced house cost $114 more to carry than the higher-priced one. The explanation for this otherwise strange situation lies in the interest rates that prevailed in the two periods. In 1982, the average interest rate was 15.38 percent. In October of this year it was 9.41 percent. Interest rates power housing markets. Consider this additional statistic: In 1982, when home prices were lower, monthly payments took 35.9 percent of median family income. In October 1988, the percentage was only 22.2. The significance of such figures, compiled by the National Association of Realtors on the basis of 20 percent downpayments, is becoming increasingly important now, the reason being that home mortgage rates are rising. It's bad news for a lot of people. While the immediate emphasis is likely to be on the growing difficulty of families to find affordable homes, the impact is more widespread. Sellers may have to wait longer for a sale. Agents may face reduced income and possibly lose jobs. Builders conceivably could have to lay off workers. No wonder, therefore, that the key forecasting tool of the entire housing industry is the level and direction of interest rates. John Tuccillo, NAR chief economist, believes the higher trend of rates will last through the winter. They'll continue higher for about five months, he says, ``and this will cause a further decline in affordability conditions.'' The potential homebuyer who won't be hurt, and might even be aided by these conditions, is the all-cash buyer. While such people are rare, they do exist; most of them probably are those who have just sold another home. For such people, the possibility exists that interest rates will drive down prices _ they already have to a slight degree _ or at least place buyers in a stronger negotiating position. Worst hurt by rising rates are first-time buyers. Trade-up buyers _ those who have owned and now wish to move up to a more expensive house _ at least have sufficient money for downpayments and closing costs. First-timers might have to count every nickel. For first-timers, the temptation might be to postpone buying in the hope of lower interest rates next spring. It's a risk that could prove correct. It could also boomerang, since lower interest rates at any time of the year generally push up prices _ and in the spring this impact is intensified. Based on October prices and rates, the NAR offers this rough affordability guide for those planning to buy: _For buyers with income of $20,000, the mortgage amount that can be handled is $50,000 on a home price of $62,500. _Income $30,000, mortgage $75,000, home price $93,800. _Income $40,000, mortgage $100,000, home price $125,000. _Income $50,000, mortgage $125,000, home price $156,300. _Income $60,000, mortgage $150,000, home price $187,500. _Income $70,000, mortgage $175,000, home price $218,000. Of course, all this could change radically. If interest rates rise, prices might fall, but in all probability they might not fall enough to offset the higher carrying charges. If rates fall, prices might rise, but most likely not enough to offset the better rates. Watch interest rates. They're the key to the housing market.
