Courtesy Steven Luttman
By Steven Luttman
April 2, 1989 marked a formative day in the childhood of many within a certain age demographic. Following the dissolution of their tag team, Hulk Hogan battled Randy Savage for the world title in what was billed as “The Mega-Powers Explode.”
Two icons of the sport engaged in battle, the former relying on brute strength and power while the latter found success with finesse and quickness. It was impossible to imagine either succumbing to the other. Three-plus decades later and this impasse parallels today’s conflict between buyers and affordability within the residential real estate market.
On one side of the housing equation, you have interest rates. Last March the Federal Reserve announced what would go on to be the first of several increases to their Fed Funds rate. Since then, the velocity in which the cost of borrowing money has risen hasn’t been seen since the early 1980s.
Many homeowners fortunately saw the writing on the wall, and locked in attractive mortgage payments before the escalation fully got underway. Goldman Sachs now estimates nearly three-quarters of all borrowers have interest rates below 4 percent, and 99 percent possess one below six.
While this was financially prudent, the corresponding friction it would go on to cause is significant. When considering moving up, downsizing or simply eyeing a change, one of the first factors a homeowner must come to terms with is the idea of trading in a 3 percent mortgage in exchange for the prevailing rates of today which are double that.
Consider a $250,000 loan amount. On a 30-year mortgage this change represents an additional $450 of monthly interest required when compared to a purchase made just twelve months ago. This puts sellers in an uncomfortable situation where they could conceivably be priced out of buying a house that is less expensive than the one in which they currently reside. Let that sink in for a moment.
By Susan Elise Campbell
