Tag Archives: mortgage rates

Bidenomics or Badonomics?

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Author:  R. Alan Harrop,Ph.D     harropcrew1@gmail.com 

Biden keeps saying that his economic plan is working for the American people. Is his so-called Bidenomics good or bad for the country? Let’s take a look at the truth; something the Biden regime seems allergic to.    

Inflation is a hidden tax that never is reversed. It may slow down, but short of an economic collapse, prices will not go down and we will always have some inflation. When Biden took office, the annual inflation rate was 1.2%.  Now it is about 10%.   This rate, however, does not reflect the actual increase in prices since 2020. Food has gone up close to 80% as any food shopper can tell you. Gasoline is up from $1.87 per gallon to $3.45 per gallon which is an 85% increase. These are essential expenses that are not included in the government’s Consumer Price Index and therefore make this estimate of inflation unreliable. Housing, which we all must have, has gone up dramatically. The cost of the average home has gone up 47% since 2020 which is unheard of. Rents are up an average of 26% over the same period. Most importantly, mortgage interest rates essentially doubled to 7%, which represents an increase in monthly payments of about $1200 for the average home purchase. Insurance has also gone up substantially for automobiles and homes (30%). Utility Costs have also increased significantly since they are up about 30%. None of these items are optional and cannot be avoided. Other items like cars, appliances, clothing, etc. are also up substantially. Who is hurt the most by these increases? Well of course, the average American not the Democrat elite. 

As a result of these increases, the average family has experienced an $8,500  annual reduction in their purchasing power and standard of living. But according to Biden, his economic plans are working and you are just too blind to see it!  You are being gas lighted. 

What has caused this destructive inflation?  Excessive government spending and printing paper money is the primary cause. However, the war against fossil fuels and excessive government subsidies for so-called green energy projects are also major contributors. All of these things are part of the Marxist agenda of the Biden regime that is out to destroy this country. 

This situation threatens the traditional American Dream. This is especially true for younger Americans. There was a time when young married couples could afford to buy a new home and begin the journey to financial security and wealth. The equity in a home is the bedrock of financial security and the American Dream.  With the dramatic increase in home prices, mortgage rates, and home insurance, young people can no longer afford to buy and must resort to paying rent.  Not a good thing to do in the long run. 

So, we are back to President Reagan’s question, “ Are you better off now than you were four years ago?” The answer is a no-brainer. You know what to do. 

 

The Impact Of Inflation

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On Thursday, The Center Square posted an article about the impact of inflation on homebuyers.

The article reports:

(The Center Square) – The housing market is not immune from inflationary woes as buyer’s purchasing power has significantly diminished in four years. Home buyers in 2024 need 80% more income to purchase a home than they did in 2020, according to a new report by Zillow.

“The income needed to comfortably afford a home is up 80% since 2020, while median income has risen 23% in that time,” the report states. That equates to $47,000 more than four years ago.

“Home shoppers today need to make more than $106,000 to comfortably afford a home,” according to the report. “That is 80% more than in January 2020.”

A monthly mortgage payment for a typical U.S. home has nearly doubled since January 2020, the report notes, up 96.4% to $2,188. The calculations are based on a 10% down payment.

Home values also increased over 42% in the last four years, with the typical home nationwide worth roughly $343,000, according to Zillow’s January market report. Mortgage rates in January 2020 were 3%, the report notes. By February 2024, they are closer to 7%.

The article notes:

The report’s analysis was based on quarterly median household income from the American Community Survey, Moody’s Analytics, and the Bureau of Labor Statistics’ Employment Cost Index.

The findings were announced as total household debt reached a record $17.5 trillion in the fourth quarter of 2023, according to a Federal Reserve Bank of New York report. Mortgage debt increased by $112 billion in Q4 2023 to reach $12.25 trillion. Balances on home equity lines of credit increased by $11 billion, the seventh consecutive quarterly increase after Q1 2022. There are currently $360 billion in aggregate outstanding balances, the Fed states.

The overspending of our government impacts all of us. There will eventually be a tipping point where the housing market crashes because people cannot afford to buy houses. We need to un-elect any Congressman or Senator that continues to vote for overspending.

Bidenomics At Work

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Aside from what you are paying for groceries and gasoline, have you looked at mortgage rates and home sales right now?

On Monday, One America News reported the following:

Sales of new U.S. single-family homes fell more than expected in October, likely as higher mortgage rates reduced affordability, but the housing segment remains supported by a persistent shortage of previously owned properties on the market.

New home sales dropped 5.6% to a seasonally adjusted annual rate of 679,000 units last month, the Commerce Department said on Monday. September’s sales pace was revised lower to 719,000 units from the previously reported 759,000 units.

Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, would fall to a rate of 723,000 units.

New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales increased 17.7% on a year-on-year basis in October.

The stock of previously owned houses on the market is nearly 50% below it’s pre-pandemic level, according to the National Association of Realtors, which last week reported that home resales plunged to more than a 13-year low in October. Most homeowners have mortgage rates under 3%, making many reluctant to sell, boosting demand for new construction.

According to The Mortgage Reports, the mortgage interest rate in 2021 was 2.96 percent. In 2022, it was 5.34 percent. The current mortgage rate, according to Nerd Wallet is about 7.5 percent. That is a significant increase. Interest rates were artificially kept low for a number of years. That was not sustainable. However, the rate of increase (the Federal Reserve’s attempt to curb inflation) has hurt real estate sales. At one point many years ago because of a job change, we were forced to take out a mortgage at 8.5 percent (giving up a mortgage of 4 percent). If you are sitting on a 3 or 4 percent mortgage right now, the last thing you want to do is move and take out a 7.5 percent mortgage. Bidenomics has hurt Americans across the board. We need a new President with a new approach to the economy.

The Real State Of The Economy

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Remember when owning your house was something of a hedge against inflation? When everything else fell apart, at least your house maintained its worth and you had a place to live. Well, it seems as if President Biden is even threatening that small amount of stability. First the administration changed the mortgage rules to penalize people with good credit ratings (article here), now higher interest rates are beginning to slow down the housing market.

On Thursday, The Conservative Treehouse reported the following:

As higher interest rates continue to put pressure on borrowers, the ability of the average person to afford a mortgage diminishes. Higher mortgage rates lead to downward pressure on residential home values as fewer borrowers can afford higher payments. Simultaneously, commercial real estate is dropping in value as vacancies continue increasing.

Put both of these issues together and already tenuous banks holding mortgage bonds as assets can become more unstable.

…A perfect storm starts to realize.

(Wall Street Journal) U.S. existing-home sales decreased 2.4% in March from the prior month to a seasonally adjusted annual rate of 4.44 million, the National Association of Realtors said Thursday. March sales fell 22% from a year earlier.

March marked the 13th time in the previous 14 months that sales have slowed. The housing market had a surprisingly strong February, when sales rose a revised 13.75% from the previous month. But after mortgage rates ticked higher, March sales resumed the extended period of declines.

The housing market’s slowdown is now starting to weigh on prices, which have fallen on an annual basis for two consecutive months for the first time in 11 years. The national median existing-home price decline of 0.9% in March from a year earlier to $375,700 was the biggest year-over-year price drop since January 2012, NAR said.

Median prices, which aren’t seasonally adjusted, were down 9.2% from a record $413,800 in June. Home prices in the western half of the U.S. experienced some of the biggest gains for many years but are now falling the fastest.

[…] Housing starts, a measure of U.S. home-building, fell 0.8% in March from February, the Commerce Department said this week. Residential permits, which can be a bellwether for future home construction, dropped 8.8%.

The housing market slowdown shows one of the main ways that the Fed’s aggressive interest-rate increases are rippling through the economy. Housing is one of the most rate-sensitive economic sectors, and high housing costs have been a big contributor to inflation.

The article concludes:

As mortgage rates rise, just as a consumer would pull back from the housing market, so too will institutional investment groups now control the slow dumping of the asset to remove the equity they pumped into it.  Much of the investment housing will be retained as rental housing, with the monthly rents being part of the returns on the investments.    However, as this dynamic unfolds further investment purchases of houses stop, because the asset overall is declining in value.  This halt of investment activity also worsens a steeper drop in home values.

Notice this line within today’s WSJ article: “The housing market had a surprisingly strong February, when sales rose a revised 13.75% from the previous month.”

What happened in February?  The BIG CLUB [Blackrock, Vanguard, Citadel, etc.] moved liquid assets out of banks into hard assets (real estate), to avoid a predictable banking issue which surfaced a month later in March.  They knew what was going to happen in banking, they moved their own assets to avoid it.

I am not sure that the American economy can survive the Biden administration’s economic policies. Even if you hated President Trump, the impact President Biden has had on stock portfolios, real estate values, the price of gas, etc., has had a serious negative impact of the middle class.