Weakening Wednesday – Indexes Dip as Mortgage Rates Top 5%

Posted on the 06 April 2022 by Phil's Stock World @philstockworld

5% Mortgages are back.

30-year notes have dipped from 190 in 2020 to 145 this morning and that's down 23.6% in two years – horrific losses for the long-term bond market but what sort of idiot was lending the Government money for 30 years at 1.25% anyway?  Now it's 2.666% but this is just the start of the Fed's tightening cycle with another 2% (at least) to go in the next 8 months and already 30-year mortages are being priced over 5%, up from 3.5% in 2020, with lows all the way down at 2.5% briefly.

And look how fast rates have climbed in 2022 – this is why home-buying has ground to a halt.  A $500,000 home with a $400,000 mortgage (assuming you have $100,000 to put down) cost you $1,686 a month at 3% in the Fall but now, in April, it's costing you $2,147 a month – an increase of $461/month (27.3%) in just one quarter.  Even if you have a $100,000 job and just got a 10% raise, the take-home is only going to be +$6,000/yr to pay the extra $5,532 so you'd better hope nothing else went up in price or you'll have to cut back on other things.  

Of course, once upon a time, we used to EXPECT 10% raises every year so we would stretch on a Mortgage because, after a few 10% raises, $2,147/month would seem like a fantastic bargain – especially if your home's value were also rising 10%, as the leverage you have on your home would make you a winner.  That's how our parents were able to retire pretty comfortably but that Social Contract collapsed in 2008.  

Close to 70% of the people in America owned homes in 2004 but that number has dropped to 65.5% now and that is putting upward pressure on the rental market, where prices have climbed 20% in the past 12 months.  In large part, that's due to a surge of people losing their homes during Covid as ownership plunged from 68 to where we are now.  You would think 5% is unaffordable but it's only sticker shock as we've gotten


You must login to see all of Phil's posts. To read the rest of this article now, along with Phil's live intra-day comments, live trading ideas, Phil's market calls, additional member comments, and other members-only features - Subscribe to Phil's Stock World by clicking here.
To signup for a free trial membership, click here.

Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!