For over a year now, we’ve been dealing with rising interest rates to “curb” inflation, and while it supposedly is helping, stuff still costs too much. Yes, it’s kept the price of televisions down at the box retail stores, but what is the real cost of higher interest rates in, say, that car in your driveway, or the house you live in?
Simply put? It’s killed the consumer.
I know a lot of people get testy when we talk about the impact of higher interest on things like credit cards or cars, but too many people choose to avoid the very real issue of how to pay for where I live.
What have interest rates done to the dream of home ownership?
The short answer? They’ve done a number on it!
Just a few years ago, that $200,000 home – low priced in many markets – would have set you back about $950/month for principal and interest.
Today? That same loan is going to set you back $1,450 each month.
…And both of these numbers are BEFORE the borrower pays property taxes, PMI, and any other costs!
In other words, yes, rental prices have gone up exponentially, but so has the cost of money for home ownership – in this example, it’s literally a 50% increase. Does that mean home ownership is out of reach? No – but it does mean homebuyers are not going to get “as much” home as they could have only a few years ago.
Home ownership still represents a viable wealth-building strategy, and the opportunity to build equity – versus renting – has been “the” strategy for decades for saving money in America.
Yes, it’s more expensive than it was, but the strategy is still sound, and the old adage, “They aren’t making any more land” is still just as true as it has always been. When I speak with clients who are getting their financials in place for a home purchase, the single biggest issue I observe is that everyone wants a million-dollar home with a minimum wage income.
You can’t do that anymore – even when lenders were playing fast and loose with the numbers before the Great Recession it was difficult – but you CAN still find deals in the real estate market.
You just have to have realistic goals and a realistic budget – two things that “reality show” real estate has brainwashed most people into NOT doing. Leave the cute storylines about trust fund babies and their house hunting escapades to prime time, get your data, organize you financials, and buy as much house as you can afford.
…And do it sooner rather than later.
I know that sounds hard, and saving money for a down payment is hard, but when you think about the fact that money is invested instead of merely spent, it makes ALL the difference.
If you’ve been agonizing over the cost of rent and you’re thinking how to pull off a home purchase, then I’d strongly suggest we have a conversation about it. Reach out and let’s talk.
All the best,