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Total Interest Paid on a $500,000 Mortgage:
– May 2021: $220,000
– NOW: $710,000
In 18 months, mortgage rates have risen from 2.5% to 7.1%.
Further, the housing affordability index is officially below 2008 levels.
The well overdue housing market correction is on its way.
— The Kobeissi Letter (@KobeissiLetter) March 2, 2023
Indeed, mortgage applications have plummeted amid hikes to the 30-year fixed rate. The Mortgage Bankers Association last month reported a 13.3% decline in mortgage applications as purchase applications fell to their lowest level since 1995.
Genevieve Roch-Decter, CFA, used the example of the impact on a median-priced home at a 7% rate. A down payment on a $467,700 home would require a $93,540 down payment with monthly mortgage payments of $2,514. “Is this doable for the average American?” she asked rhetorically.
Mortgage rates are back above 7%. At that rate, here’s what buying a median home in the US looks like:
– $467,700 price
– $93,540 down payment
– $2,514 monthly mortgage payment
Is this doable for the average American?
— Genevieve Roch-Decter, CFA (@GRDecter) March 2, 2023
“No-one is selling real estate and getting rid of a 3% mortgage when interest rates are 7% today,” Andrew Lokenauth of BeFluentInFinance.com observed. “This is called the ‘golden handcuff.’ They are handcuffed to the property (financially tied to property due to low-interest rates), and not selling to keep it.”
No one is selling real estate and getting rid of a 3% mortgage when interest rates are 7% today
This is called the “golden handcuff”
They are handcuffed to the property (financially tied to property due to low-interest rates, and not selling to keep it)
Inventory is so low
— Andrew Lokenauth (@FluentInFinance) March 2, 2023
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