If you are looking to buy your first home and need to finance, good luck.

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Image courtesy of Mortgage News Daily

Matthew Graham at Mortgage News Daily writes Mortgage Rates Jump up to 23-Year Highs

Coupled with home prices back at record highs, housing affordability hit a new record low.

Case-Shiller Home Price Vs Hourly Earnings, the CPI, and Rent

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Case Shiller National and 10-City home prices indexes plus OER, CPI, and Rent indexes from the BLS.

Chart Notes

• The latest Case-Shiller home price indexes is for June. It represents repeat sales of the same house in roughly a April-May timeframe.
• OER stands for Owners’ Equivalent rent. It’s the price one would pay to rent one’s own home, unfurnished, without utilities.
• CPI is the consumer price index.
• Rent of primary resident is just what it sounds.
• CPI, OER, and Rent as as measured by the Bureau of Labor Statistics (BLS).

Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020.

After a two-month decline in most markets, prices are again on the rise.

Case-Shiller Home Price 1988=$150,000

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The same home that cost $150,000 in 1988, now costs $667,964.

Mortgage Payment and Wage Adjusted Mortgage Payment

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The monthly payment on that home has soared to $3,725. But wages have gone up as well. On a wage-adjusted basis, the monthly mortgage payment at 7.47 percent is $1,777.

It’s worse than it looks however because that is just the mortgage payment. It does not include property taxes, insurance, or association dues.

On January of 2021, the wage-adjusted mortgage payment for this house was $904 and now it’s $1,777, nearly double in approximately 2.5 years.

How Much are Homes Overpriced?

For at least 12 years, rent, wages, and home prices all rose in sync (second chart).

If that relationship held, we can compare the index of hourly earnings to the index of home prices.

The Case-Shiller home price index is 308 but should be 211. Thus, home prices are 46 percent higher than if both indexes were 211.

Alternatively, an immediate 31.5 percent decline in home prices would bring houses in line with wages.

I believe this is a better way of looking at things than alleged affordability based on mortgage rates which can fluctuate wildly over time.

Existing-Home Sales Decline 17 of Last 19 Months – Yes, This is a Crash

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Yesterday, I commented Existing-Home Sales Decline 17 of Last 19 Months – Yes, This is a Crash

Yes, This is a Crash

• Existing-home sales are down 35.8 percent in 2.5 years.
• Existing home sales are back to a level seen in the mid 1970s.
• If there is a decline next month, and that is highly likely, existing-home sales will drop to a 12-year low.

Real estate tooters keep telling me there is no crash.

What the heck are the above stats? Chopped liver? An egg salad sandwich?

Prices have not crashed but transactions have. Crashes are rare, but we are in one now, from a transaction perspective.

Fed’s Tightrope Dilemma

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Please note Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

The dot plot of FOMC participants is for tighter policy through all of next year.

The longer the Fed holds rates high, the longer the housing crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.

That is the Fed’s tightrope dilemma, of its own making. If you have any confidence in the Fed you have seriously misplaced confidence. The Fed is a pack of group-think economic illiterate wizards, not the inflation fighters they pretend to be.

More By This Author:

Existing-Home Sales Decline 17 Of Last 19 Months - Yes, This Is A Crash
Fed Rate Interest Rate Hike Expectations Are Still Higher For Even Longer
Fed Expresses Uncertainty, Worries About Inflation, Fires Warning Shot On More Hikes