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Shocking New Data On The Nation’s Seemingly Endless Housing Crisis

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Shocking New Data On The Nation’s Seemingly Endless Housing Crisis

Don’t look now, but the interest rate on a 30-year mortgage is still hanging out around 7%. 

Bill McBride who runs the fantastic Calculated Risk housing blog recently suggested 6% to 7% could be the normal for 30-year rates. The Juice doesn’t think this is crazy. In fact, we consider it plausible, if not likely.  

Thinking about this makes us even more concerned about people biting off way more than they can or should chew on housing. Some homeowners are taking on mortgage payments as high as $7,000 a month, calling it the new normal as they anticipate rates coming down. But what if rates don’t come down anytime soon? 

Things could get ugly. Even on median-priced properties. In July, put the nation’s median home at $440,000, down just five grand from June. And a decrease of only 0.9% annually. That’s the smallest yearly drop in four months. 

Put 10% down on the typical home in the US and you’re looking at a $3,400 monthly mortgage payment, including taxes and insurance, on a 30-year loan at 7%. Not quite $7,000, but nothing to sneeze at. To afford that level of payment you still have to earn roughly $136,000 a year. 

But that’s not even the shocking part of today’s Juice.

The shocking data comes from Point2Homes, who recently ran an interesting study. They wanted to see how much house renters in cities across the country could get if they swapped their rent payment for a mortgage payment of the same amount. 

Their main finding: In 63 of the nation’s largest cities, renters would get less than 1,000 square feet of house if they took on a mortgage equal to their old rent payment. 

This is insane. 

The research made one big assumption. That a 20% down payment was taken care of. Of course, saving enough money for a down payment is a major obstacle for many renters. It used to be the biggest obstacle. But with mortgage payments at or near all-time highs, even if you have enough cash in the bank, you might not be able to afford your payment. 

Then there’s the question of what you’d be getting for your money. 

Let’s start with the good news first. Some of the places where changing a rent payment or an identical mortgage payment yields more than 1,000 square feet of space. 

Detroit, Michigan, takes the cake. Renters could transfer their rent payment into the same mortgage payment and secure 2,421 square feet of house, based on that city’s average rent and median home price/price per square feet. 

From there, it looks like this:

  • Cleveland, OH: 2,048 sq. ft. 
  • Philadelphia, PA: 1,462 sq. ft. 
  • Baltimore, MD: 1,308 sq. ft. 
  • Fort Wayne, IN: 1,287 sq. ft. 

Of course, New York City and California dominate the list of places where you’ll secure a home of less than 1,000 square feet with the typical rent payment morphed into a mortgage. 

You’ll be coziest in Fremont, California, just across The Bay Bridge with a mere 506 square feet. 

Followed by:

  • Honolulu, HI: 548 sq. ft. 
  • San Francisco, CA: 567 sq. ft. 
  • San Jose, CA: 574 sq. ft. 
  • Seattle, WA: 613 sq. ft. 

In New York City as a whole you’re looking at 617 square feet. 

A breakdown into some of the boroughs looks like this:

  • Manhattan: 473 sq. ft. 
  • Brooklyn: 501 sq. ft. 
  • Queens: 624 sq. ft. 
  • Bronx: 635 sq. ft. 

Somewhat surprisingly a few smaller cities came in after NYC: Laredo, Texas (659 sq. ft.), Tulsa, Oklahoma (684 sq. ft.) and Oklahoma City (684 sq. ft.)

After that, it was the usual suspects with places such as San Diego, Anaheim, Austin, Irvine, Long Beach, Oakland and Los Angeles among the 63 large American cities where a mortgage payment equivalent to the average rent payment gets you less than 1,000 square feet of home. 

The Bottom Line: This data is as shocking as it is sad. Because it just dings yet another step along the way to the American dream. It used to be that people said you’re throwing money away on rent. And, to some extent, you can still make that argument. However, it’s no longer a no-brainer to buy rather than rent in an increasing number of cities. 

The down payment used to be the biggest hurdle. Now, we can add skyrocketing house prices and high interest rates to the list. From there, you have to think about how much house you’re able to get for your money. 

As weeks and months pass and this crisis of affordability persists, the idea of taking cash saved to buy a home and investing it in the stock market sounds pretty freaking attractive.

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