Back in July I saw this telling graphic on the Times’ web site:
It would appear we are looking at a 30 year fixed rate nearly 1.5% higher than the low of 2003. Let’s compare the above to the 10 year Treasury chart below:
It’s clear that mortgage rates did not follow the Treasury’s recent rate decline due to the subprime issues. Looking at the impact on home purchases, I calculate that the $1380/mo payment that would finance a $250K loan at 5.25% will now only support a $213K loan at 6.71%. This is nearly 15% less purchasing power due to interest rates. I’ve remarked in the past that the rise in home prices (by that I meant median home prices) did not show any bubble forming. In two articles I wrote, aptly titled Housing Bubble and Housing Bubble Part 2, I offer charts showing wage and interest rate adjusted cost of home ownership, and from the late 80’s right to 2004 showed no decrease in affordability at all.
Joe
Related JoeTaxpayer Posts- Money Merge Account Analysis Pt 7
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- Of MMAs and HELOCs
- Money Merge Account Analysis Pt 22
- Another Sunday Personal Finance Roundup
