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Interest Rates Rising Sharply Means the Economy is Shifting Quickly. What Do You Need to Know?

Posted by Sami Thalji | Jun 16, 2022

If you're a first-time homebuyer that has not yet bought a home then you probably won't be able to buy one for a few more years. On Wednesday, the Federal Reserve raised interest rates resulting in an increase of 1.5% to 1.75% on average. This marks the biggest interest rate hike since 1994 and is due to rising inflation. This means that mortgage interest rates are rising to around 6%. The difference between the old 3% interest rate and the new 6% interest rate comes to approximately $1600 per month in extra mortgage payments. That is a big number that will price out at least 20 million potential homebuyers from the market.

At 3%, a 30-year, fixed-rate mortgage on a $400,000 home costs the homeowner around $1,700/month in principal and interest alone. Over 30 years, the homeowner pays approximately $200,000 in interest payments. The same loan at 6% raises the monthly principal and interest payment to approximately $2,400, with the homeowner paying around $465,000 in interest alone.

The rise in interest rates will have a few consequences. First, with first time homebuyers effectively being priced out of the market, look for investment funds to continue to buy inventory. The transition of the US economy into a renter-based economy will accelerate in the next few years. Second, the lack of single-family home buyers will lead to a decrease in household wealth and wealth building potential for most consumers in the indefinite future. With no home to build equity, building wealth will become increasingly difficult for consumers. Third, housing inventories will continue grow as supply will soon overtake demand. That is the natural consequence of buyers leaving the market. Fourth, large inventories means home values will drop. Expect a 10-30% decrease in home values across Florida, with Tampa, Lakeland, and Jacksonville leading the way in value declines. Fourth, as values decline foreclosures will increase. As equity disappears, paying mortgages will become harder and harder to justify for many families struggling to make ends meet. As equity decreases, mortgage lenders also become more aggressive in pursuing mortgage defaults.

Where does this lead? It is hard to tell just how far the market will fall. The scammy nature of the modern US economy leaves us susceptible to big momentum swings because so much of what drives the market is hidden from the general population and there may be factors, involving fraud and shady accounting on Wall Street's end of things that may be revealed as markets drop. No one really knows what the future holds but there are a few things to consider. First, if you're struggling financially or need to get out from under your mortgage and sell you home then you need to hire a lawyer and not a realtor.  Realtors simply do not have the depth of knowledge and know-how to help anyone that is in need of in-depth analysis regarding their financial situation. Second, consulting with Florida Consumer Lawyers regarding the big picture is necessary before making any decisions regarding your home. As the inevitable recession hits it is vital that consumers and families keep their eyes focused on the big picture so they can come through these economic times with a chance to regain whatever wealth may be lost.

About the Author

Sami Thalji

Sami Thalji is a native Floridian, born in Clearwater and raised in St. Petersburg, Florida. Sami graduated from Osceola High School in Seminole, Florida before attending and receiving both his Bachelor of Science and Juris Doctor from the University of Florida in Ga...


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