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It is the Change in Monthly Payment that Matters

by Calculated Risk on 4/01/2022 03:02:00 PM

Today, in the Calculated Risk Real Estate Newsletter: It is the Change in Monthly Payment that Matters


Yesterday I pointed that we shouldn’t compare the current situation to the housing bubble and bust, but instead we should look to the 1978 to 1982 period for lessons.

See: Housing: Don’t Compare the Current Housing Boom to the Bubble and Bust

In that post, I argued it wasn’t the level of mortgage rates that impacted housing, but the change in rates (this was a shortcut).

More precisely, it is the change in monthly payments that impacts housing. Monthly payments include principal, interest, taxes, insurance (PITI), and sometimes HOA fees (Homeowners Association). We could also include maintenance, utilities and other costs.

The following graph shows the year-over-year change in principal & interest (P&I) assuming a fixed loan amount since 1977. Currently P&I is up about 21% year-over-year for a fixed amount (this doesn’t take into account the change in house prices).

So, this is less of an increase than in 1979.

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