Mortgage rates have shot up over the last couple of years. Prior to 2022, homebuyers had been enjoying 3% (or even lower) mortgage rates for the better part of a decade plus. But that came to an abrupt ending, and rates more than doubled.
A lot of people like to happily tell anyone that’ll listen that they have a 2.5% mortgage rate. Which is great for them, but don’t feel bad if you don’t have this. As a point of comparison, in 1981 the average mortgage rate was just over 18% (!!).
We used $700,000 for the home price in our example. The median home sales price in California is $743,000. The $4,339 monthly payment includes the mortgage payments, as well as estimated property taxes and insurance. It does not include maintenance or any other potential expenses (HOA, utilities, etc.).
If mortgage rates are so high, why hasn’t the housing market collapsed?? 61% of homeowners have mortgages under 4% currently. So the majority of homeowners aren’t hurt by higher mortgage rates. And, a lot of homeowners are reluctant to sell their homes because they don’t want to give up their low mortgage rates and be forced to get a new mortgage at a much higher rate. Because of this, there are far fewer homes that come up for sale. Redfin said that about 1% of all homes were sold so far in 2023, which is well below the norm. With all that said, who knows what will happen going forward.
What should YOU do? Whether you rent or buy, you should live below your means and invest the difference. Buying (or renting) too much house can cause you to be “house poor” and limit your ability to invest and slow your journey to financial independence.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.
-Vivi & Shane
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