Mortgage Equivalent Rates 13%????
June 18, 2008
– Comments (2)
"The rate on 30-year fixed-rate mortgages averaged 6.57% last week, up from 6.24% the previous week...."
We all know rates have been going up steadily over recent weeks climbing from under 6% to now over 6.5%. But in order to factor higher non housing related expenses and it impact on housing affordibility, I created a new metrix called MER or mortgage equivalent rate using 2000 as the baseline.
Most can agree that family incomes have been relatively stable since 2000. Further, the cost for almost everything we spend money on has just about doubled including food, fuel, insurance and property taxes. It appears that the average family is spending approximately $10K to $15K extra per year for those non housing related items.
If those items did not rise in price, or incomes increased to offset those costs, then the consumer would simply have maintained over the past eight years. However, that is not the case.
If we were to transfer the non housing expenses into the mortgage, it would be like taking a $200K mortgage at 6 1/2% and converting into a 13% mortgage.
And for those families whose incomes have been stable since 1990, factoring the rise in home prices and non housing expenses, including college payments, it would take MER to over 25%!!!!
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