Tag Archives: psychological

The Cost of Owning Is Rising

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"Balloons" by Shaun Fisher is licensed under Creative Commons Attribution 2.0.

ValuePenguin quoted me in The Cost of Owning a Home Is Rising. It reads, in part,

If you’ve looked lately at home prices in any major U.S. city, you likely got a dose of sticker shock thanks to a red-hot housing market that shows few signs of cooling off. And if that wasn’t enough of a setback for prospective homebuyers, now news comes that the cost of owning a home is rising.

In October, average mortgage rates reached 4.9%, the highest they’ve been since 2010, according to a new report from the Urban Institute. While it’s only an incremental increase over 2017’s average rate of 4.1%, it could affect both current homeowners and would-be buyers.

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What do rising mortgage rates mean for prospective home buyers?

With mortgage rates on the rise, homebuyers may need to reassess their budgets. “Homebuyers seeking to purchase a home priced at $275,000 when interest rates were at 4% will see an increase in their monthly payment of approximately $150,” said John Myers, a qualifying broker at Myers & Myers Real Estate in Albuquerque, New Mexico. “A homebuyer who could quality for a $275,000 home at a 4% interest rate will now qualify for a home of approximately $243,000.”

But despite average mortgage rates sitting at an 8-year high, it’s still considered low enough to be attractive to millions of Americans who dream of owning a home. “Five percent remains a very low interest rate for mortgages over the long term,” said David Reiss, a professor of law and real estate expert at the Brooklyn Law School. “They were over 7% in the early ‘70s and over 17% in the early ‘80s. Rates like today’s have not been seen for more than 50 years.”

Reiss told ValuePenguin he believes that nearing the 5% threshold has more of a psychological impact than anything else, and that would-be homeowners should instead focus on how much house they need and can afford. “If the monthly cost is manageable and the house meets the needs of your family, then ignore this marker,” he said. “If you are not sure you can afford that cost month-in and month-out for the foreseeable future, then find something that is more manageable, whatever the interest rate you are offered.”

Rising Mortgage Rates

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graphic by Chris Butterworth

NBC News quoted me in Mortgage Rates Just Hit 5 Percent: What Does That Mean for Homebuyers and Owners? It opens,

Mortgage rates crossed the 5 percent line on Wednesday for the first time since 2011, marking a new era for a generation of Americans raised on super-low borrowing rates and highlighting the downside of a burgeoning national economy.

Strengthening economic growth, near-record low unemployment, inflation rates and policy moves by the Federal Reserve have all contributed to move the needle beyond the psychological 5 percent barrier.”It has only been in this decade that they have fallen below 5 percent, rates not seen since the 1960s,” said David Reiss, an expert in real estate law and professor at the Brooklyn Law School.

From 1971 through early October 2008, the average rate for a 30-year mortgage was 8.1 percent. The day before Halloween 1981, the number spiked at 18.44 percent, according to data from Freddie Mac, the government-sponsored mortgage rebundler.

Psychology aside, there’s a real money impact as well. Every increase of 10 basis points, or 0.1 percentage point, means another $6 per month per $100,000 of mortgage, said Danielle Hale, chief economist for Realtor.com.

Over the last year, the mortgage on a typically priced home of $295,000 has increased by $115 to $120 a month.

Growing monthly payments are just one of the factors contributing to tougher times for many buyers. House prices also have been on the increase, and potential homeowners must contend with the loss of the so-called SALT deductions in last year’s tax cut legislation, which complicate things in high-tax states.