Tag Archives: Red-Shoe Economist


JUNE 15, 2023 – YES! The simple answer is, of course!
I saw a survey this week where people said they needed mortgage rates to drop to about 4% for them to afford a new house. As my friend The Red-Shoe Economist, KC Conway, would say ‘I call BBQ-Sauce!’
People can afford a 7% mortgage rate. They can afford a 10% mortgage rate! Us old-timers remember when a rate below 10% was a bargain.
People buy a mortgage payment. They do not buy a home price. Everyone knows that. So, all people have to do is adjust the price downward (and the mortgage amount is obviously based on the purchase price…for simplicity, I will assume a 100% LTV since people do not put much money down).
Let’s say someone can afford a $2,000/month PITI (for now, assume no escrow). At a 4%, 30-year mortgage, they could buy a $418,922 house. Technically, a higher price if the LTV was less than 100%.
At a 7% mortgage rate, the $2,000/month PITI can buy a $300,615 house. The point is they can still afford a house at a higher interest rate. They just have to adjust the price category they look at. They do the same thing when interest rates go down – they look at houses pricier than they really need. Well, adjust in the other direction when rates go up! Life is so simple.
Also, one major benefit to the above that gets overlooked is it is alot easier to save for a down payment on a $300k house than a $420k house! People have a much easier time of getting into a new house when they adjust their price target downward.
Combine the above with a low inventory and you probably have an explanation for home prices rising every month this year. Demand remains strong. People can afford houses at the new interest rate level.
Lastly, I find the argument that the public cannot afford a house payment at 7% interest weak when they can afford to run up their credit card debt at 18.99%-26.99%+ interest rates!!!!!! Another way to more easily afford a mortgage payment at current rates is to not have credit card debt! Adjust your way of living. It’s that simple.
By this time next year when the world realizes the day of artificially low interest rates is history and will not return, they will simply adjust to living with 7%-8%+ mortgage rates and supply and demand analyses will work the same as they did before. People adjust. They always have. It’s just easier to complain before facing reality and adjusting the way they do things. Human nature.
The Mann