# Secret #56 – About 80% of House Price Appreciation from 1990 through 2020 was Due to Falling Mortgage Interest Rates

U.S. house prices tripled from 1990 through 2020. On average, a house worth $100,000 in January 1990 would have been worth about $300,000 in December 2020.

Although house prices appreciated 200%, monthly P&I payments only increased 41% due to the lower interest rates.

1990. The P&I payment on $100,000 at 9.9% interest would be $870 per month.

2020. The P&I payment on $300,000 at 2.7% interest would be $1,227 per month.

A $1,227 monthly P&I mortgage payment in 2020 could buy a $300,000 house but only a $141,000 housing in 1990.

1990. A $1,227 monthly P&I mortgage payment at 9.9% interest could buy a $141,000 house.

2020. A $1,227 monthly P&I mortgage payment at 2.7% interest could buy a $300,000 house (in this simplified example without down payments).

That suggests if interest rates hadn’t fallen (but the monthly P&I mortgage payment stayed the same) that house prices would have only increased around 40% from January 1990 to December 2020. The rest of the 200% increase in house values was due to falling interest rates.

This quick analysis suggests that as much as 80% of the house price appreciation from 1990 to 2020 was due to falling interest rates.

Without falling rates, home ownership would have created 80% less wealth.

For example, if you bought a house in 1990 for $100,000 and paid off the mortgage in 2020, you gained $100,000 in wealth by paying off the mortgage and $200,000 in wealth due to the appreciation.

If, however, mortgage rates had never fallen you would have gained $100,000 in wealth by paying off the mortgage and only around $40,000 in wealth due to appreciation, according to this quick analysis.

**What happens to house price appreciation over the next 30 years if it turns out interest rates bottomed out in 2021? **

"What happens to house price appreciation over the next 30 years if it turns out interest rates bottomed out in 2021?"

That's what I'm afraid of.