Homebuyers today face a number of challenges and obstacles. Aside from all the pain normally associated with the process of finding a house and assembling the paperwork to apply for a mortgage, they are also facing an environment in which interest rates are more than twice what they were just two years ago.
The difference between the low 2.68% rate of December 2020 and last week’s 6.94% rate means that, despite the cooling of the national housing market, homebuyers are getting a lot less for their money. Consider that a $500,000 mortgage from late 2020 would cost $2,023 per month for principal and interest, whereas currently, it would cost $3,306, an increase of more than 63% to borrow the exact same amount. To think of it another way, a current homebuyer with a $2,000 monthly budget can afford to borrow only $288,000, more than 40% less than he could borrow just 2 1/2 years ago.
AMERICA NEEDS THE FLORIDA MODEL
And yes, housing has pulled back in most of the hottest markets. But even enormous home price declines of 20% or 30% do not make up for such a steep increase in the cost of borrowing.
In short, unless you’re buying with cash, something few normal people can actually afford to do, you are not enjoying any of the benefits of the downturn in housing prices.
Naturally, President Joe Biden’s Federal Housing Finance Agency, the entity that regulates Fannie Mae and Freddie Mac, has found a way to make things even worse, specifically for homebuyers who have paid their bills responsibly and accumulated good credit histories.
