Mortgage rates courtesy of Mortgage News Daily.
Mortgage Rate Notes
- Two years ago, the average mortgage rate was 2.83 percent.
- On October 20, 2022, mortgage rates hit 7.37 percent, the recent high.
- On February 2, 2023, the mortgage rate dipped to 5.99 percent, the lowest rate since September.
- As of Friday, February 17, rates are back up to 6.80 percent.
It is not likely many captured the bottom, but there was ample time to refinance around 3.0 percent.
Let’s compare monthly payments at 3.0 percent to payments at 6.50 percent on a home costing $500,000 with 20 percent down.
Cost of Mortgage, $400,000 Loan at 3.0 Percent
Cost of Mortgage, $400,000 Loan at 6.5 Percent
The above charts are courtesy of the Mortgage News Daily Mortgage Calculator
Monthly Payments and Annual Payments
- At 3.0 Percent: $1,966 ($23,592 annually)
- At 6.5 Percent: $2,808 ($33,696 annually)
Although home prices have peaked, it’s actually much worse because that same house cost much more in 2023 than in early 2021.
Case-Shiller Home Price Index
National Home Price Index Recent vs 2021
- November 2022: 466.4
- February 2021: 375.5
Case-Shiller is both stale and lagging. Let’s assume the index now is actually 425.5 (a rise of 50 points, or 13.32 percent from February 2021)
That means a home that cost $500,000 today would have cost about $433,000 in early 2021. Let’s update the comparison at a 3.0 percent interest rate with 20 percent down.
At 20 percent down the mortgage would have been $346,000.
Cost of Mortgage, $346,000 Loan at 3.0 Percent
Monthly Payments and Annual Payments, Same House, Now vs Early 2021
- At 3.0 Percent: $1,740 ($20,880 annually)
- At 6.5 Percent: $2,808 ($33,696 annually)
In addition, the 2021 buyer would have another $13,400 in their pocket due to a smaller down payment.
How the Fed Messes With People’s Lives
- The Fed’s decade’s-long QE programs artificially lowered mortgage rates. This made huge winners out of anyone who already had a house and could refinance at a much lower rate.
- Anyone who did refinance then had plenty extra money to spend and they still do. This is an aspect of inflation that has not been discussed.
- The cheap money pushed up home prices and the Fed has had minimal luck popping the obvious bubble. Prices are falling, but nowhere near as fast as they rose.
- This totally screws new buyers who on the same house now has a monthly mortgage payment of $2,808 vs $1,740 a mere two years ago.
- That home was no bargain two years ago as noted by my Case-Shiller chart, but at least it was “affordable” inaccurately assuming bubbles make things affordable.
Now the Fed has an inflation mess it does not quite know what to do with.
Fifty Percent Say They Are Worse Off Than a Year Ago
As a result of Fed tinkering, fiscal stimulus, and Biden’s super-inflationary policies, it’s no wonder Fifty Percent Say They Are Worse Off Than a Year Ago
But still, Biden won’t stop.
Biden Begs for More Inflation and Tax Hikes
On February 7, I noted Biden Gives a Well-Delivered SOTU Speech Begging for More Inflation and Tax Hikes
President Biden delivered his State of the Union speech far better than I expected. The problem was content, not delivery.
I counted 25 inflationary ideas in his SOTU speech. It’s just a start.
Most of those ideas will never get through the House, but don’t discount Biden’s ability to wreak havoc with inflationary executive orders, sanctions, and tariffs.
Expect more nonsense like this: Al Gore and John Kerry Aim to Hijack the World Bank for Climate Agenda.
Powell has his work cut out for him. Much is his own doing, but Biden sure isn’t helping matters.
This post originated at MishTalk.Com.
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Nobel Laureate Dr.
Milton Friedman famously said: “Inflation is always and everywhere a monetary
phenomenon, in the sense that it is and can be produced only by a more rapid
increase in the quantity of money than in output.”
Only price increases generated by demand,
irrespective of changes in supply, provide evidence of monetary inflation.
There must be an increase in aggregate monetary purchasing power, AD, which can
come about only as a consequence of an increase in the volume and/or
transactions’ velocity of money.
The volume of domestic money flows must expand
sufficiently to push prices up, irrespective of the volume of financial
transactions consummated, the exchange value of the U.S. dollar (“reflected in FX indices and currency pairs”), and
the flow of goods and services into the market economy.
shrank by $6.2 trillion dollars, while the banks were unaffected, increasing by
$3.6 trillion dollars).
According to
Corwin D. Edwards, professor of economics,
in England on a Rhodes scholarship and earned a doctorate in economics at
Cornell University. He spent a year teaching at Cambridge University in England
in 1932. He taught at New York University in 1954, the Chicago School from
1955-1963, the University of Virginia, and the University of Oregon from 1963-1971.]
while the increase in the actual quantity of money has finance only one-third.” In other words, the ratio of the money supply to GNP has fallen.
Act of 1933 prohibited the payment of interest by member
Golden Age in Capitalism.
During the U.S. Golden Era in Capitalism (not
optimized with 3 recessions), the annual compounded rate of increase in our
means-of-payment money supply was about 2 percent. The nonbanks grew faster
than the commercial banks (which made Citicorp’s Walter Wriston jealous), and
thereby a higher percentage of savings was utilized (through direct and
indirect investment) and was also FSLIC and NCUA insured.
M1’s average
growth was 1.5% each year (from 142.2 to 176.9). CPI inflation averaged 2.5%
during the same period (from 23.7 to 33.1). R-gDp, not optimized, averaged 5.9%
during 1950-1966 (in spite of the 3 recessions).
If you exclude the
Korean War, 1955-1964, the rate of inflation, based on the Consumer Price
Index, increased at an annual rate of 1.4 percent. Unemployment averaged 5.4
percent.
Things ended in 1965. That’s when the commercial
banksters began to outbid the non-banks for loan-funds (resulting in
disintermediation of the thrifts). Money is less
potent than savings. The modeling today is where every dollar of R-gDp is now
financed by money (1.120).
commercial banks are credit creators. The non-banks are credit transmitters. Lending/investing by the DFIs expands both the volume and the velocity of new
money. Lending by the NBFIs increases the turnover of existing deposits (a
transfer of ownership), within the commercial banking system.
velocity of money was a statistical stepchild. I.e., virtually all the demand
drafts that were drawn on DFIs, the CUs, S&Ls, etc., cleared through DDs –
except those drawn on MSBs, interbank & the U.S. government. That is all
“new payment methods” clear through transactions’ deposits.
“The user cost price is the marginal utility from holding the asset, not the average or total utility and not its weight.”
Money is not neutral in the short or long term. Money is the measure of liquidity, the yardstick by which the liquidity of all other assets is measured.
see: Toward a More Meaningful Statistical Concept of the Money Supply
The Journal of Finance
Vol. 9, No. 1 (Mar., 1954), pp. 41-48 (8 pages)
“Quantity leads and velocity follows”.
Cit. Dying of Money -By Jens O. Parsson
The rate-of-change in money flows, DDs, peaked in Feb. Obviously, Vt peaked in June and hasn’t yet declined.
on 12/2004 @ 1467.7. It didn’t exceed that # until 10/2008 @ 1514.2.
Dec. 2004’s money #s
weren’t exceeded for 4 years. That is the most contractive money policy since
the Great Depression. No, Bankrupt-u-Bernanke “did it again”. The
FED drained required reserves for 29 contiguous months (i.e., the rate of
change was negative, coincident with the top in the Case Shiller Home Price
Index).
raise asset prices, including house and stock prices, which, by making people
feel wealthier, tends to stimulate consumer spending-the “wealth effect”.