Today, house prices are lower than in years and interest rates are at historic lows.  This combination of factors allows buyers to be able to afford houses that not long ago were financially out of reach.  However, interest rates will rise, sooner or later.  Experts are predicting interest rates will rise to as high as 5.5% within a year.  Mortgage buyer Freddie Mac said Thursday the rate on the 30-year loan increased to 4.47% from 4.42% last week. The average on the 15-year fixed loan rose to 3.51% from 3.43%.

You may calculate your own mortgage payments here if you like.

For example, a buyer today qualifies for a home that costs $200,000.  If the interest rates go up by 0.25%, that same buyer now qualifies for a house that costs $195,000, thus putting the $200,000 house out of range.  If the interest rates go up 0.5%, the same buyer now qualifies for a house that costs $190,000, putting the $195,000 house out of range.  If the interest rates go up a full 1.0%, that same buyer now qualifies for a house that costs $180,000.  The $200,000 house is now very far out of reach for the buyer whose qualifications stayed the same, the only change was the increased interest rates for a mortgage.  

The mortgage payments would stay just about the same, however the purchasing power decreases by 10% for every 1% increase in interest rates.

Thus, as interest rates go up, and the mortgage payment remains stable, the value of the home one can purchase goes down.  If a buyer chooses to wait until a better house comes along, they may not be able to qualify for a loan for it.