What Is the Cost of An Interest Rate?

The Weekly Recap

Inflation rose 3.7% in August putting the Fed on alert for one more hike this year. Janet Yellen ‘feels good’ about a soft landing. The dollar drops against the yuan, yen. Wall Street continues to plea with the Fed to ease up on US bank capital rules. Apple launched their new iPhone that does the same exact thing as your old iPhone but is more expensive and has a different charging port so you can’t use any of your chargers anymore. It was a pretty terrible first week of football if you root for any of the NY teams but at least you weren’t trapped on a cruise ship in the Arctic experiencing Covid and kudos if you had this on your 2023 bingo card, Mexico’s congress held a hearing on UFO’s and showed ‘alien bodies’.

What Is the Cost of An Interest Rate?

The CPI number for August came in higher than expected and is making the Fed more likely to raise rates yet again before the end of the year. When we hear that rates are rising we immediately go to the notion that things are becoming more expensive and less attainable. Will borrowing cost more? Yes. But that increase is not as harsh as you would think and is fractional compared to missing out on getting into the market or expanding your portfolio.

For every $100,000 you borrow on a mortgage, depending on your rate, the above chart lays out what you will pay. If you borrowed $500,000 at 7%, your mortgage payment would be ($665 x 5) $3,325 per month. If you borrowed the same money but at 5% your mortgage payment would be ($537 x 5) $2,685 per month. That's only a $640 difference a month and $7,680 a year. The asset you purchase will appreciate more in your first year than you would have saved in a lower rate by waiting.

In high rate environments, prices are lower. And when rates do drop, they will only drop by a quarter to a half point at a time. Saving $50,000-$70,000 off an asking price is more advantageous than saving $7,680 a year in a lower rate.

You are better off buying in a higher rate environment with lower prices, than a lower rate environment with higher prices.

Market Performance

Here are how some other indexes and asset classes have performed as of this mornings opening bell.

NYC Market Update

Here is a view of new inventory that has come onto the NYC market over the past week as well as newly signed contracts in Manhattan which has seen a big increase.

Mortgage Rate Update

Mortgage rates inched back up this week and remain anchored north of seven percent. The re-acceleration of inflation and strength in the economy is keeping mortgage rates elevated. However, potential homebuyers can still benefit during these times of high mortgage rates by shopping around for the best rate quote. FreddieMac suggests homebuyers can potentially save $600-$1,200 by applying for mortgages from multiple lenders.

News You Can Use

• The Fed is On Alert for One More Hike After ‘Disappointing’ Inflation Bloomberg

• Jamie Dimon Slams Regulators On Capital Plans Bloomberg

• August Wholesale Inflation Rises 0.7%, Hotter than Expected CNBC

• Americans Have Never Been Wealthier CNN

• With the Economy Holding Up, Why Is The Market Still so Down on America’s Banks? CNBC

• Yellen Feeling “Very Good” About Soft Landing For US Economy Bloomberg

• Hedge Fund Billionaire Bill Ackman Lays Down His Investing Commandments Yahoo Finance

• The Dollar Drops the Most in Two Months Bloomberg

• NYC is One Of The Most Expensive Cities to Be Happy In the US Timeout

• Why America’s Deficit Doubled to $2 Trillion in One Year Axios

• Here is Our Biggest Takeaways from Apple’s Big Event CNBC

• Apple’s iPhone 15 Will Use USB-C For Charging Yahoo Finance

• Mexican Congress Holds Hearing on UFOs Featuring Purported “Alien” Bodies Reuters

• Luxury Cruise Ship Charging $33k per Person Stranded in Freezing Arctic NY Post

The Deep Insight

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