Hey Dave, is it true that mortgage rates have made home ownership way more expensive?
Yes, it is undoubtedly true that higher mortgage rates translate to higher mortgage payments, but it is not necessarily true that it makes home ownership more expensive.
It all depends on perception versus reality. Here's what I mean. Today's buyers think about what they perceive they have lost. For example, they feel the $800,000 house they could have bought with a three and a half percent mortgage is way more expensive with a 6%. They are correct. It would cost $952 more per month. However, the reality is the $800,000 house would've cost 880k to purchase in the frenzied market of the past.
While today, they could likely purchase the home for 776,000 and get concessions from the seller for closing costs and or repair costs related to a home inspection. So when you factor the price and loan amount differences today would cost you about $551 more per month, but you would've saved significantly on closing costs and the purchase price. So if you look at the actual net cost of ownership over 10 years, factoring loan balance, equity, closing costs, and payment. Actually comes out to be about a $3,000 difference, which would equate to $25 per month, and that doesn't even factor in tax savings from higher interest reductions and other factors.
Bottom line, when evaluating real estate, you must take a long term view of the investment and understand the true cost associated with the purchase. Wondering what's next for you? Let's talk about it so you can make sound decisions based on sound data.
