Just two years ago, mortgage payments were equal to rent payments
Ric Edelman: Let's talk about real estate here on The Truth About Your Future. It's a dynamic market, and it is changing very rapidly. It's almost as though they flipped a switch and the massive level of interest and people buying real estate during the pandemic and coming out of it with incredibly low interest rates, historically low, in fact, has dried up. As interest rates have risen, the number of people interested in buying homes has fallen sharply. And now we are at a crossing point. In 2020, the average mortgage payment was the same as the average rent payment. This was a part of the big reason people were so happy to buy a house. Why pay rent when what you're paying for owning the house is no more expensive? It was $1,200 bucks: the average monthly mortgage payment in 2020. It was also the average monthly rent payment. It was a no-brainer, and this is why so many people wanted to buy houses. This is why home prices skyrocketed, and it's why you were in such competition with other people and your effort to buy a house. Well, here we are over two years later, and the situation, as you know, has radically changed. Mortgage payments are now 50% more than rent payments. This is because interest rates have doubled in the past year. Rents are up, too, but not by nearly as much. The average rent today is $3,500 bucks, not much different from two and a half years ago when it was $1,200 bucks.
Ric: But the average mortgage today is $1,900 dollars. And so clearly, it's a much more expensive thing to go buy a house than to keep renting. And it's forcing people to ask the question: should I buy, or should I keep renting? People choose based on this comparison, meaning if you own real estate, you have to recognize that when you're setting the price of your house, you're not merely competing with other houses in the neighborhood, you're competing with other rental properties in the neighborhood, and you've got to get your mortgage down to about where rents are. And that means you're going to have to lower the price of your house. Because while interest rates keep going up, mortgage costs keep going up, and that means prices have to come down in order for those houses to be more competitive in the marketplace. So, if you're a home seller, you probably need to get more realistic about the value of your house and lower its price. If you're a buyer, you might want to offer less than you were thinking. You had to offer less than what you certainly were willing to offer a few months ago. You might even want to continue waiting a few more months for prices to come down even more. There's no doubt about it: real estate prices are changing, and they will continue to do so for months to come. That is the truth about your future. In this case, short-term future. Stay with us.