The Week in Review: July 5, 2022
It’s Simple Math
Realtors will tell you that real estate is about location, location, and location. Prices and the change in prices will vary from neighborhood to neighborhood. Nationally, the average price of a home is up sharply over the last two years.
But since the beginning of the year, it’s not only higher prices. Mortgage rates have soared, too.
It’s a double whammy for buyers, and existing home sales and new home sales are down, according to the National Association of Realtors (NAR) and the U.S. Census.
Let’s take a walk through the math and illustrate what buyers are facing.
In May 2021, the average 30-year fixed mortgage rate was 2.96%, per the Freddie Mac survey. The median existing home sales price: $355,000, according to the NAR survey.
With a 20% down payment and a loan of $284,000, the monthly principal and interest payment on a 30-year fixed mortgage was $1,191 (Bankrate.com mortgage calculator).
By May 2022, the average 30-year fixed mortgage rate had risen to 5.23%, per the Freddie Mac survey. The median existing home sales price jumped to $407,600, per the NAR survey.
With a 20% down payment and a loan of $326,000, the monthly principal and interest payment soared to $1,796.
In one year, the average payment rose an astounding 51%. And our example excludes homeowners’ insurance and property taxes.
Not all homes are purchased with loans, but most are. Given rising prices and rising mortgage rates, it doesn’t take a rocket scientist to figure out why home sales have slowed. It’s simple math.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
Since 1926, when dividends are factored in, the S&P has risen 72% of the time year-over-year. More than half the time (57%), the S&P posts gains of 10% or more. - CNBC, January 15, 2022
Berkshire Hathaway snapped up $51 billion in stocks in the first quarter of 2022, more than any other three-month period in its history. Warren Buffett said, “Occasionally, Berkshire gets a chance to do something, and it’s not because we’re smart. It’s because we are sane.” - Forbes, May 17, 2022
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