The Real 30 Year Mortgage Rate Is 2.12%, Housing Affordability at All-Time High

Confounded Interest ^ | 03/12/2013 | Anthony B. Sanders

[whitedog57]

According to Bankrate, the average 30 year mortgage rate is 3.72%. But when we consider that headline inflation is 1.6%, that translates to a REAL mortgage rate of 2.12%.

If you think that the inflation is actually higher, then subtract your estimate of inflation from the nominal mortgage rate of 3.72%.*

Since headline inflation is 1.6%, that indicates that Treasury rates with maturities of less than ten years are earning investors (like The Fed) a NEGATIVE real rate of interest.

Back to housing and mortgages. With a real mortgage rate of 2.12% for 30 year fixed, the affordability of housing (based on mortgage rates and house prices) has hit an all-time high.

Having said that, house prices are still relatively high.

I don’t want to create the illusion that San Francisco house prices (substitute your favor example) are “affordable.” For example, San Francisco County has a home ownership rate of only 36 percent and the median rent in San Francisco is $3,100. And house prices remain above the national average.

The Mortgage Bankers Association indices are being released tomorrow morning at 7am EST. Here is the last mortgage purchase application index from last week.

On a different topic, Bill McBride at Calculatedrisk (in conjunction with Tom Lawler) have an interesting table of distressed real estate. Reno, NV has the dishonor of being the worst housing market (in their limited list) in terms of distressed share of market. And Virginia’s own Hampton Roads is improving, but is still at 34.2% distressed market share.

So, we are slowly recovering from the housing and credit bubble. But slow unemployment improvement isn’t helping.

* Shadow Government Statistics has a much higher calculation of inflation. The higher the inflation rate, the lower the REAL mortgage rate.

[whitedog57]

Bubble???????????? Or not.

Great charts.

[TomGuy]

that headline inflation is 1.6%

LOL

If houses were being downsized and sold at the 'regular' prices like many products are, houses would be the size that only little dolls could fit into.

That 1.6% inflation only exists in the governmental reports from Washinton bureaucracies, not in the real world.

[3Fingas]

If you got the money, buy land, buy lots of it. If my wife didn’t spend all of mine all the time, I would be the land baron of Central Texas.

[Tanniker Smith]

A falling interest rate doesn't really make housing more affordable. I remember rates dropping a dozen years ago ... and buyers raising their prices because people could afford more.

We weren't going to save any money -- it was just a matter of who was going to get the money.

[SampleMan]

This is the first time in my life that I’m not paying down debt aggressively. In fact, I’ve restructured my debt to pay it off as slowly as possible.

At 2.9% I am getting the money for free under the worst plausible scenario, but more likely I’m being paid to take the money under the most plausible scenario.

Real inflation is already above 3% and will likely hit 10%+ before this socialist mess runs its course.

I’m 100% certain that we will not be “suffering” through a bolstered dollar and deflation.

[beef]

I am with you. Paying down credit card debt and the like is one thing, but eating beans to pay off a low fixed rate mortgage, like the Dave Ramsey drones are doing, is stupid. Blind hatred of the “money changers”, I guess.