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Mortgage News Daily says mortgage rates officially top eight percent. Let’s crunch some mortgage payment numbers.

Monthly mortgage calculations based on existing and current mortgage rates using Mortgage Rate Daily calculator and the Case-Shiller home price index.

I have previously crunched housing affordability numbers before, but never at 8.0 percent.

Case-Shiller is based on repeat sales of the same home over time. It is the best way to look at prices but it does lag.

The Housing Bubble Is Expanding Again

Case-Shiller national home prices vs CPI, Rent, and Average Hourly Earnings.

For 12 years, home prices, rent, the overall CPI, and hourly earnings all rose together. That changed in 2000 with another trendline touch in 2012.

After a brief dip, the index shows home prices are rising again.

If we accept the latest index as being the best guess as to where prices are now, we can calculate how much homes are overpriced.

How Much Are Homes Overpriced?

If the 12-year trend of home prices rising with average hourly earnings stayed intact, the home price index would be 211, not 308.

Based on average hourly earnings, home prices are ((308-211) / 211) percent too high, roughly 46 percent too high. If you prefer, home prices would need to fall ((308-211) / 308), roughly 31 percent.

Alternatively, if home prices stagnate for years, wages may eventually catch up.

Mortgage Rates Top 8.0 Percent

30-year mortgage rate chart courtesy of Mortgage News Daily.

Housing Affordability at 8.0% vs 3.0 Percent (Lead Chart)

Assuming 20 percent down, let’s calculate the monthly payments from the Mortgage News Daily Widget in January 2020 vs now.

The calculation assumes a person was able to refinance at 3.00 percent or less somewhere along the line. That was easily doable with rates dipping all the way down to 2.65 percent.

In January of 2020, the Case-Shiller home price index was 213. It’s 308 now. That means the exact same home priced at $400,000 then would now cost $400,000 * 308 / 213 = $578,404.

To compare monthly payments, we crunch monthly payments on a $400,000 home at 3.0 percent vs a $578,404 home at 8.0 percent.

With 20% down ($80,000) the mortgage then would have been $320,000. With 20% down now ($115,681) on a $578,404 home means a mortgage of $462,723.

This calculation also assumes a buyer can come up with the difference in down payments of $115,681 now vs $80,000 then.

Monthly Payment More Than Doubles

The MND calculation shows a mortgage payment of $1,602 in 2020 would now be $3,395.

Notably, this calculation is not based on median or average price which could realistically mean anything. Rather it’s in the exact same house!

Existing Home Sales Drop Another Two Percent to a 13-Year Low

Existing-Home Sales courtesy of Trading Economics

Home sales were 6.34 million in January of 2022 at a seasonally adjusted annualized rate. They are now 3.96 million.

That’s 37.5 percent in less than two years. Rising mortgage rates explain why.

This is a transaction crash.

For discussion and many additional charts, please see Existing Home Sales Drop Another Two Percent to a 13-Year Low

CPI Fatally Flawed

The Consumer Price Index (CPI) ignores asset bubble inflation. Nonetheless, the Fed and other economists are slaves to such measures.

The Fed and economists in general don’t count home prices in their measures of inflation on the basis homes are a capital expense not a consumer expense.

This is like ignoring cancer in your arm because it’s not in your leg.

My point is that “inflation matters, not just consumer inflation”.

How the Fed Destroyed the Housing Market and Created Inflation in Pictures

For a discussion of this dual-track housing bubble with rising prices despite a transaction crash, please see How the Fed Destroyed the Housing Market and Created Inflation in Pictures

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