BREAKING NEWS! Mortgage rates have risen to almost 5 percent! Oh no! The sky is falling. Sell everything! (Particularity DDOG, S, BILL, NET, UPST, MNDY)
I mean, really if interest rates jump 65 percent in a quarter, at this rate the will be 27 percent in a year and we are all RUINED! Ruined I say! Buy gold and bullets!
Ok, enough hysteria. Yes mortgage rates are now at 5 percent. I did a little math. Actually, didn’t, used an online calculator. For a typical 300,000 dollar house with 20
percent down, the mortgage with typical insurance and taxes will be about 1300 a month at 3 percent interest. (2400 for taxes and 1000 for insurance per year, note: that ain’t happenen in Florida) To get the same payment, assuming same taxes and insurance, the house price
must drop to about 250,000 dollars. This is a little
less than 20 percent. If my condo fell in price by 20 percent it I would still be 20
percent up in 24 months. This would not bankrupt me.
Further, lowering the purchase price of houses would reduce cash needed at closing and potentially reduce property taxes, this is especially important in high property tax states, think Texas.
There would be some economic head winds as tax revenue would fall among other things.
This is not to say the economy will not enter a recession. My model of three inputs, Energy, Capital and Labor currently shows that the economy has significant problems. All three inputs are now dear. Labor is in short supply, Oil, the primary energy input is selling above its 10 year moving average and capital costs have made a step
change up by more than 50 percent, with more increases planned.
If these persist, an economic
contraction is very likely very soon.
But, mortgage rates by themselves are not any type of Armageddon.