As everyone cheers for low inventory due to “low rates” no one asks what is the true cost of home ownership and if people can afford it.
So as we see low delinquencies (not lower than in 2006 and 2005 by the way) and low inventory, the costs of homeownership retention are rising.
From insurance, maintenance, utilities, and taxes the costs of owning a home have never been higher. Have you had a plumber come by to fix a leak lately? Well, that’s like a car payment. How about gutter cleaning or replacing an HVAC? That’s up too and will cost you an arm and a leg.
Insurance and property taxes are now sky high especially as insurance companies see replacement costs soar and some exit markets like California and Florida.
Because of inflation, we are now seeing more homeowners getting in trouble. Not with mortgages as they still have access to mortgage modifications but with insurance and taxes. More people in Florida are going without home insurance as payments ballooned. This is hurricane season just started again.
Across the country, we are seeing a surge in tax lien sales. Local governments sell unpaid bills from property to front footage taxes that homeowners aren’t paying. It’s not just in poor neighborhoods.
One nearby neighborhood that has private schools that charge University level tuition and multimillion-dollar homes (the highest listing is $49M) had a tax lien sale on more homes than inventory on the market.
Initial low-rate debt payment savings along with work from home and stimulus created inflation through more disposable income for spending. Now that inflation is bringing the cost of homeownership retention higher, wiping out most of the savings from refinancing at low rates. Some, unfortunately, bought too much home when rates were low and didn’t consider the true cost of future homeownership.
Buying a home is the first step. Paying for it and keeping it is another. The rate they have at this point no longer matters. It has created savings and that’s it. It’s a sunk cost/benefit. It cannot change as it is locked. We could ask what was done with that savings and where is it now.
Unfortunately, most of it was spent and savings is falling while all other debts rose (from cars to credit cards to personal debt). Now what?
The ability to pay debt and all other costs or the ability to refinance rollover debt to lower payment does. We can forget about the second with current rates that aren’t coming down anytime soon.
Inflation is the worse evil in economics. The problem is that it takes time to notice it and really feel it.
It becomes the devil incarnate when rates are high and it stubbornly stays high!
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