Home Sweet 30-Year Mortgage
by David Reavill
For most of us, purchasing our home is the largest single financial transaction we will ever make. It is also a tremendous obligation. As we sign that mortgage loan for the purchase, we often commit to completing 360 consecutive monthly payments—a thirty-year contract to pay both amortized principal and interest to our lender.
It is not an obligation that anyone takes lightly. I remember my mother’s incredible joy when she made her last mortgage payment and paid off “the house.” It would be best if you felt you would have the income or assets to meet those payments. You have to have a pretty optimistic view of your future to make such a commitment.
I’ve often thought that the best survey of the nation’s view of our future is the number of people who purchase a home and thereby take on that life-altering, long-term mortgage.
In an ordinary year, we are right at peak home-buying season. Families are looking to move during the summertime while school is on vacation. There are moving vans out front, dropping off the new neighbors. It’s usually a happy time, full of anticipation and more than a bit of anxiety.
But this year, you could tell it was different.
It all began last Spring when the Federal Reserve started to raise interest rates. Just a quarter point the first time in March, but more and more lately. It might seem like just a fraction or two, but the impact on mortgage payments has been dramatic. Last year, a $100K mortgage had a monthly cost of just over $400. Not bad. Among the lowest rate ever. But today, that same $100K mortgage, also principal and interest have a monthly payment of $550. That’s a third higher than just last year.
Those higher monthly mortgage payments could mean the difference between buying a new house or not. And apparently, that was the case for 63,000 buyers in July. Redfin, the giant real estate website, reports that 63,000 buyers withdrew their offers in July. That represented 16% of the total number of home offers for the month, the largest ever outside the Pandemic.
After their heart was set on a new home, suddenly, they had to reverse course and back out—a traumatic decision for these buyers and, for many, an expensive one. Many would lose any deposit they had made, which would insult their injury. It is never easy.
Something big is changing. When 63K buyers change their minds, there has to be a reason. In a poll conducted last week, the Rasmussen Group reports that only one-third of the country feels “we’re headed in the right direction.” This broad-based question is the country “headed in the right direction” has been used for years to judge the country’s mood.
Whenever the positive response to the question is as low as it is now, it means real trouble for the incumbent. Today, it is becoming increasingly unlikely that Joe Biden will be re-elected as President.
But there are more than just political ramifications to this pervasive attitude. There is a growing sense of unease about the economy. I remember having a similar feeling in the pit of my stomach back when Richard Nixon was President. As his administration wallowed, the scent of the scandal became pervasive. And the economic mood of the country changed. Like now, inflation was a problem, and it seemed inevitable that times would worsen.
I dare say that most people I talk to today have an increasingly dismal outlook for the overall economy and many for their jobs. Is it any wonder why so many backed away from that 30-year commitment to purchasing a new home?
Unfortunately, these things have a habit of building upon themselves. Pessimism has a way of creeping into all our activity. We begin to accept bad outcomes as just the natural result of our current circumstances.
That’s how recessions become a reality.
And we’re getting very close to that now.
Every business day, you and I get a front-row seat to how the country is doing, whether we are on an uptick or a downtick.
In the next 24 hours, we will get two critical measures of how our neighbors are doing. They will announce the latest in Retail Sales in just a few minutes. Will you still shop? After all, that’s the engine that makes this economic motor run. And tomorrow morning the latest results on Existing Home Sales. Another measure of the Real Estate Market.
Now I know that so much of the news and information you receive has bias. Many of the newscasts are rooting for one side, politically or another. Remember that the reports and indicators discussed here are without prejudice. A sale is a sale.
So, here is our unbiased look at how our fellow Americans are behaving, whether they have the cash to shop and whether they are willing to purchase an existing home.
I hope you enjoy our view of Real America.
Real Estate markets continue to struggle this morning, as the latest report on new mortgages shows a decline of better than 2%. This makes the fifth of the last seven weeks, which shows mortgage applications declining.
The major economic report today will be the latest reading on Retail Sales. Wall Street is looking for a big drop in sales today, as the consumer remains under pressure from rising costs.
While we wait for overall retail sales, we’ve had a couple of retailers report their earnings, with Target and TJX Corporation both trading lower on their earnings, while home improvement store Lowes is trading higher.
Later this afternoon, we will get results from the electronics company: Synopsis System and tech company Analog Devices.