What Does An Interest Rate Actually Cost?

The Weekly Recap

Mortgage rates dropped week over week for the first time since March, September is the new target date for when investors believe that the Fed will drop rates, 70% of renters believe obtaining a mortgage is either somewhat or very difficult to obtain while rental prices continue to rise faster than wages. OpenAI is getting ready to launch a search engine competitor to Google, Berkshire Hathaway revealed at their annual shareholders meeting that they are sitting on $189 billion in cash and NYC has the most millionaires in the world.

What Does an Interest Rate Actually Cost?

As inflation reports have come in hotter than expected over the past few months, we keep seeing reports about “rates being higher for longer”. When we hear that rates are rising, (or not being cut) we immediately go to the notion that things are becoming more expensive and less attainable. Increases in rates may not be as harsh as you would think and is fractional compared to missing out on entering the market or expanding your real estate portfolio. So what does an interest rate actually cost?

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 $30,000-$50,000 off an asking price is more advantageous than saving $7,680 a year in a lower rate. Also, when rates do drop, you are going to see a large influx of buyers start to make their way off the sidelines and create more competition for the low inventory that exists on the market. When demand outpaces supply prices go up.

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

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.

Mortgage Rate Update

Mortgage rates decreased following a weaker then expected jobs report. Rates hovering around seven percent impact both buyers and sellers which is evident through low inventory levels as well as some buyers continuing to wait on the sideline for steeper decreases in rates.

News You Can Use

• US Jobs Post Smallest Gain in Six Months Bloomberg

• Rents Set to Be the Last Domino to Fall in Global Inflation Battle Bloomberg

• OpenAI Plans to Announce Google Search Competitor on Monday Reuters

• Rents In These US Cities Are Rising Faster Than Wages- With NYC Hit the Worst NY Post

• US Banks Report Weaker Loan Demand Reuters

• Renters Are Pessimistic About Securing Mortgages Bloomberg

• Fitch Downgrades NYCB to ‘BB’ On Near-Term Earnings Pressure Reuters

• US Job Growth Totaled 175,000 in April, Much Less Than Expected CNBC

• Lenders Are Seeing a Bottom for Consumers Wall Street Journal

• Blackstone’s Gray Sees Growth Slowing in Inflation Fight Bloomberg

• FTX Says Most Customers of the Bankrupt Crypto Exchange Will Get All Their Money Back CNBC

• Stock Buybacks Hit Highest Level Since 2018 Yahoo Finance

• One Out of Every 24 New York City Residents Is Now a Millionaire Bloomberg

The Deep Insight

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