FED CHAIR SAYS, ‘SOME PAIN’ IS ON THE HORIZON! EQUIVALENT TO YOUR DENTIST RUNNING OUT OF NUMBING MEDS DURING YOUR ROOT CANAL!
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
HOME SALES ARE SLOWING AS MORTGAGE RATES HIT SIX PERCENT – RED ALERT, BRACE FOR IMPACT/RECESSION!
The Fed Chair vows to bring down inflation and “keep at it until the job is done,” Powell said. But that plan involves a series of hefty interest rate hikes and will bring “some pain to households and businesses.”
Fed Chair Jerome Powell says ‘SOME PAIN’ on the horizon
“SOME PAIN” TRANSLATION
- Greater than five million Americans will lose their jobs
- The unemployment rate almost doubles from ~3.5 to ~6.0+%
- Tens of thousands of small businesses and jobs will be DESTROYED as interest rates go up
- A decline in home sales and prices
- Make it official – WE ARE IN A RECESSION
HOME SALES ARE SLOWING AS INTEREST RATES HIT SIX PERCENT – RIGHT AS I LIST MY HOME FOR SALE!
We are selling Jazzy’s home {she will graciously bring her servants with her}. If you are a cash buyer, I have good news (NOT SO MUCH FOR SELLERS LIKE ME). Most U.S. home prices are moving down.
The Federal Reserve continues to combat inflation by aggressively pushing up the federal funds’ rates {the rates the Federal Reserve charges banks to borrow money}. This increase in cost to banks is generously passed forward to you, the borrower for home, car, credit cards, etc. loans
The 30-year mortgage increased this year from ~three to six percent.
ASSUMPTIONS – JAZZY’S HOME SALE
- Sales Price: $700,000.00
- 30 YEAR Mortgage Interest Rate: Six+ percent
- Down Payment: $150,000.00
- LOAN BALANCE: $550,000.00
ONE YEAR MAKES A YUGEEEEE DIFFERENCE
Using the above assumptions, a September 2022 buyer versus January 2021 will pay almost $1,000.00 MORE EACH MONTH.
BUYERS OPTIONS:
- Buy the home paying the higher monthly mortgage
- Buy a cheaper home
- Add more to your down payment, making the monthly cost fit your budget.
- WALK AWAY
CONSEQUENCES – FEWER BUYERS, LOWERING DEMAND, LOWERING PRICES = BUYERS MARKET!
The impact of doubling 30-year mortgage rates in 2022
| OPTIONS | LOAN AMOUNT | DOWN PAYMENT | MORTGAGE RATE | MONTHLY PAYMENT | TOTAL INTEREST PAID | TOTAL PAYMENT INCLUDING INTEREST 30-YEAR LOAN | |
| 1- 2021 January Rate | $550,000.00 | $150,000.00 | 3% | $2,318.82 | $284,775.20 | $834,775.20 | |
| 2-September 2022 Rate | $550,000.00 | $150,000.00 | 6% | $3,297.53 | $637,110.80 | $1,187,110.80 | When interest rates doubled, payments increased by $978.71, or 42%. |
| 3 September 2022 Rate – Keeping the payment the same as the first Option | $438,600.00 | $150,000.00 | 6% | $2,314.27 | $447,137.20 | $833,137.20 | If the buyer can only afford an ~$2318.00 monthly payment, they must reduce the purchase price from $700,000.00 to $588,600.00. |
To keep the payment the same as January 2022 three percent rate, a buyer today would drop from a $700,000.00 to ~$590,000.00 home.
CONCLUSION
The dirty R word – WE ARE IN A RECESSION!
The majority of Americans cannot afford the official annual inflation rate of eight percent. But the eight percent rate calculated by the Federal Government is about as accurate as Putin’s promise to turn Europe’s gas supplies back on! When you add gas, food, utilities, etc. {you know things we all NEED}, our inflation rate is greater than twenty percent! The average household spends an extra $500+ each month due to inflation, while their income has essentially remained flat.
If considering buying or selling real estate, research the cost trends in your city or region. Let the data answer if now is a good or bad time to buy or sell. WAITING IS ALWAYS AN OPTION!
REAL ESTATE IS ALL ABOUT LOCATION, LOCATION, LOCATION!
LET’S MAKE SOME MONEY – CRYPTOCURRENCY IS STILL ACCEPTED!
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St Jude Hospital: https://www.stjude.org/
Wounded Warrior Project: https://www.woundedwarriorproject.org
Folds of Honor: https://foldsofhonor.org
Wilson’s No-Kill Animal Shelter: https://wcnkas.org
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FINANCIAL LITERACY IS JUST NOT THAT COMPLICATED – TRUST ME!
https://wealthbuildingpowers.com/2019/04/01/financial-literacy-is-just-not-that-complicated-trust-me/
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger with an NC. State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I desired to make a difference as a speaker and writer. I was blessed to be coached and mentored by strong women and men in my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (a small but brilliantly created plant nursery). I am a successful investor in stocks, options, and real estate and am happy to share my finance and investment lessons. I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog as recommendations for your situation. As an investor, you must establish your risk/loss tolerance. Investment in any asset involves risk, including complete loss.
Please seek your licensed CPA or fiduciary financial advisors for individual financial advice.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
