Last post I wrote out a detailed budget as an example for how to try and manage your money the best you can. I received a lot of feedback on how unrealistic it was in todays society. The sad part is I agree wholeheartedly, not many people buying homes are coming up with a $1,600 mortgage payment all in. The cost of owning a home has sky rocketed since quarter 4 of 2019. I understand that COVID played a large factor in the housing boom we have seen but I just want to point out what really happened and who to blame. The FED, the end all of interest rates should have never let rates get as low as they did during COVID when you can get a mortgage for 2.5% who isn't going to jump in on this. Real estate investors came in and absolutely destroyed the market, why because they could get a loan for a measly 2.5% and leave their money invested in the stock market and make huge returns, and jack up rent because of all the other investors buying property and dominating the market. The FED should have let the recession happen, they play games with peoples livelihood. Now we are in this massive hole and the FED thinks increasing the rates will help. Well guess what happens when they do that? Builders stop building demand slows and inventory dries up, why does inventory dry up? because the folks with the 2.5%-4% interest rates aren't moving right now, the builders aren't building, and the rest of us are priced completely out of the market because inventory is low, the costs are high on existing property and the rates are impossible to overcome. The FED seems to think builders will keep building at the pace they were during COVID but it cost them money to build and have it sit empty when the demand is gone and why is the demand gone because of rates. The housing market can not Win right now, and honestly I do not even see a solution to the problem all I can do is educate and hope for more affordable housing moving forward. Lets look at some examples below of the difference of a $300,000 Loan at 3%,4%,5%,6%,7%, and 8% over 30 years. Just so you all can see what a massive difference in affordably the rate actually does over a 30 year term.
$300,000 @ 3% $300,000 @ 4% $300,000 @ 5% $300,000 @ 6%
Monthly payment Monthly Payment Monthly Payment Monthly Payment $1,265 $1,432 $1,610 $1,799 Total interest paid Total Interest Paid Total Interest Paid Total Interest Paid $155,332 $215,609 $279,767 $647,515 Total cost of loan Total Cost of loan Total Cost of loan Total cost of loan $455,332 $515,609 $579,767 $647,515
$300,000 @ 7% $300,000 @ 8%
Monthly Payment Monthly Payment
$1,996 $2,201
Total Interest Paid Total Interest Paid
$418,527 $492,466
Total Cost of loan Total Cost of loan
$718,527 $792,466
Now keep in mind these monthly payments DO NOT EVEN include taxes and insurance which depending on your state can add another $500-$1,000 a month in payments. Some math for you the person at 3% is paying a whooping $936 a month less for their home. Let that sink if for awhile and then tell me how the middle class is supposed to be able to afford homes. Our government employees are so out of touch with the reality that all of us are living every single day. The rich will continue to get richer and the middle class will continue to sink into levels flirting with poverty.