A week ago, we provided a simple, irrefutable analysis of "What The Recent Surge In Rates Means For Your Home Purchasing Power" in which we demonstrated how the average home affordability goes down (due to the declining marginal purchasing power in a rising rate environment) as interest rates (for mortgages and all rate-sensitive products) go up. What this means is that all else equal, absent a massive increase in disposable income (especially when the opposite is happening to disposable income), the average home affordability plunges as rates go up. So here is the benchmark price-rate curve updated for a reality, in which the national average 30 Year fixed has exploded from 3.40% on May 1 to a whopping (for the New Normal) 4.875% as of today for Wells Fargo customers. The matching affordability collapse: from $450K to $378K, or a stunning 16% equilibrium price drop in under two months!
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