Food +25%; Fuel +50%; Cost of a New Home +123% ! – A bag of food at your local grocery has increased ~25% from January 2021 to April 2024. – The cost to fill up your with car has increased ~50 % ($2.40 vs. $ 3.60 per gallon, national average) from January 2021 to April 2024. – The cost of homeownership has increased 123% since 2020.
+123%? Yes, 123%!
This calcuation is shown below and includes home purchase price and cost of financing/ mortgage payments. (note: mortgage payments was once a key component of CPI, before the government changed the equation to eliminate mortgage costs).
Total monthly housing cost for the median homebuyer – 20% down payment = 80% LTV 30-year mortgage – has risen 123% since the start of 2020. Total monthly housing costs rose from $1,977 to $3,724.
In that time, median home price is up 46% from $255k to $365k.
Much of the rise in total housing costs is due to the rise in interest rates. The current 30-Year fixed rate according to Mortgage News Daily is now 7.50%. The rise in mortgage rates just in the last two weeks accounts for a 5% increase in total housing costs.
Taxes and insurance are up approximately 43%, while utilities (water, gas, and electric) are up nearly 30% since the start of 2020.
The chart below shows annual rental properties were once equivalent to the cost of homeownership annual payments. Today, homeownership has soared by such an extent, it is out of reach for most to move into a new home. Yes, Inflation is too high. The Fed knows this. Chairman Powell would like to ease, but unfortunately the data does not support this action at the current juncture.
Inflation/CP| is stuck in a range of 3-4%. The markets are pricing no June cut, and less than a 50% probability of a July cut. In this election year, President Biden is troubled by inflation that now makes home ownership prohibitively expensive. Investors will benefit by deploying capital to earn high cash flows, position for Higher for Longer.
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