There’s growing concern around the escalating expense linked to securing a home, largely attributed to the economic policies currently being exercised. Redfin’s recent data indicates an alarming rise in the median monthly housing payment, which now stands at a record of $2,775. This is a jarring 11% surge compared to the same period from the time before.
Several factors contribute to this affordability crisis, each augmenting the troubles for a common citizen in the realty market. The shortage of homes, resulting from years of underbuilding, is one of the primary issues. The problem has been accelerated by the spike in mortgage rates along with the soaring prices of building materials.
The precarious status of the southern border, which has witnessed a steady ingress of non-native inhabitants, is another point of concern. Apart from compromising national security, this reality adds another layer of competition for resources, as these immigrants vie for the same amenities, including housing, alongside citizens and legal immigrants.
To provide a clearer picture, consider the hypothetical case of acquiring a 30-year mortgage for $300,000 at an interest rate of 7.1%. Your monthly mortgage installment would be in the ballpark of $2,100. Over the course of the mortgage period, in addition to paying back the principal, you will accrue a steep $426,000 in interest.
With the spiralling costs and increasing interest rates, that loan of $300,000 no longer retains its original value—it ends up taking out $726,000 from your pocket. This drastic shift in financial burden can be traced back to the economic decisions taken post-January 2021.
Analyzing conditions before this time period may lend perspective to this situation. When the previous administration concluded its term in January 2021, the average 30-year mortgage rate hovered around 2.65 percent. Applying the same calculations on a $300,000 loan, the monthly installment was significantly lower — around $1,208. By the end of the mortgage period, the accumulated interest was about $135,000, making the total cost about $435,000.
Currently, due to an enhanced fiscal approach, homeowners now bear an additional burden of roughly $900 monthly on your mortgage. It’s not just the mortgage; possibly more crucial is the $290,000 increase in long-term interest over those three decades. Imagine the improvements in life quality that an additional $900 a month could bring. Picture the huge boost to your retirement fund or even college tuition fee that the difference in interest could amount to.
The hike in interest rates and unprecedented home-buying costs are consequences of factors directly under the control of the executive. The inflationary fiscal policy involving the injection of trillions of dollars into the system contributed significantly to the devaluation of the dollar, ultimately resulting in the doubling of interest rates.
Matters were further complicated by the decision to curtail domestic energy production. The resultant increase in production costs for nearly all goods and services added to higher prices, indirectly contributing to inflation and a further hike in interest rates.
The decision to relax border controls isn’t without far-reaching implications, either. The arrival of numerous non-native inhabitants competing for goods, services, energy, and housing, puts pressure on the demand-supply balance. This typically results in inflation and a rise in interest rates.
Pertaining to the housing market, there’s been an observable lack of activity due to the hesitance of potential sellers who had locked in a lower mortgage rate. This reluctance to sell further limits the availability of options for potential buyers, increasing demand and subsequent costs.
Maturity for those of us investing in Certificates of Deposit or money market becomes a silver lining amongst this scenario. With the surge in interest rates, we’re finally seeing substantial returns — over five percent, a respectable figure indeed.
For prospective homebuyers navigating through this complex situation, here are some thoughtful recommendations: consider living in regions where the tug of adverse economic policies is less perceptible. If feasible, opt for smaller towns where real estate and land are considerably cheap. Select a residential property that could use some refurbishing — a strategy to purchase for less.
Additionally, visualize taking on the renovations yourself and focus on repaying your mortgage promptly. These steps will undoubtedly save you a significant amount in long-term interest repayments. How do we know this works? It’s the real-life script we followed when we secured our mortgages at a rate higher than seven percent back in 1997. The due diligence paid off; our home was entirely ours in seven years.
Among the economic dilemmas, one fact remains constant: financial freedom is the optimal path. Being in debt can feel like chains, and the absence of homeownership echoes serfdom. In order to change this narrative, it is worth considering the profound impact your voting choices have on your daily life and future.
