Impact of rates increasing on home prices

[Jeff Lundeen]

Rates are likely to go up at the next two federal reserve meetings.  This means that monthly mortgage payments will rise and these numbers will be eating into affordability for the average home owner.  It also means that cash flow opportunities will likely decrease if you cannot increase rents.

How much does more expensive money decrease purchasing power of a home buyer?  The difference between 3% and 5% on a 300k loan is $1265/month vs $1610/month = $345/month.  That's pretty significant!  To get back down to the same monthly payment, the loan would have to be $235k.  That $65k reduction in home price is 21.6%!

I know that a 3% mortgage rate doesn't really exist anymore, but am I doing these calculations right?  Will, all else being equal, home prices need to drop significantly to provide the same opportunities that were available a few years ago?