Mortgage rates on a 30-fixed loan have reached 8%, the highest since 2000. In perspective, a home for sale at $400,000 would carry a monthly mortgage payment of over $3,500, compared to less than $1,500 when mortgage rates were at 3%. In each case, the down patent would be $80,000. Other closing costs would take that to $90,000.
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If the buyer of a $400,000 home had an income of $150,000, that would likely be $110,000 after taxes or $9,600 monthly. The house also carries property taxes and insurance, which the buyer would have in either case. But that could quickly put the monthly price of ownership at $5,000. That does not leave much for transportation, food, fuel, clothing and other issuance. This means the buyer with an 8% mortgage and $150,000 income can barely afford a $400,000 house. (You can buy most homes in these 23 cities for less than $125,000.)
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The buyer of the $400,000 house has another problem. There are ever fewer in that price range as people hold their homes, particularly the ones they bought with 3% 30-year fixed-rate mortgages. The number of people holding their homes at these mortgage rates has more incentive as interest rates rise. They have a low rate of owning prime property.
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Increasingly fewer people can afford to own a home with mortgage rates at 8%. If the Federal Reserve raises rates again, the percentage will go higher.
Americans Cannot Afford a Mortgage
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
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