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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here. |
Today's bonus chart pack speaks for itself. Though the peak of inflation is largely behind us, the impact of Chairman Powell’s interest rates remains very much in the present.
Household debt increased by $16 billion, totaling $17.06 trillion in the second quarter of 2023, as per the recent NY Fed Quarterly Report on Household Debt and Credit. Credit card balances surged, adding $45 billion and hitting a series peak of $1.03 trillion. Other balances, encompassing retail credit cards, consumer loans and auto loans, went up by $15 billion and $20 billion, respectively. Student loan balances decreased by $35 billion, settling at $1.57 trillion, while mortgage balances remained consistent at $12.01 trillion. This is to say, nothing of personal savings rates headed back down after a slight recovery in 2023.
The impact of interest rates on credit card holders is evident. However, it's even more startling when examining mortgages. With 30-year mortgage rates now over 7%, a house purchased for $500K with 20% down would have had finance charges of $207K just 24 months ago. The same purchase today incurs finance fees of $600K over the 30 years. So, a $500K house now effectively costs you $1.1 million over its financing period.
Per the NAR, in 2020 the median home price stood at $300,200 with payments accounting for 14.7% of income and a qualifying income of $49K. By June 2023, home affordability has reached historic lows. The median home price surged to $416,000, payments as a percentage of income doubled to 28.5%, and qualifying income also on the Mars plan to $104,016 — more than twice the 2020 figure.
The bright side? Those of us engaged in markets stand to benefit from the inevitable mean reversion. However, the upcoming phase will be painful for many average hardworking families. As always, we will follow the flows.
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Learn more about the Market Situation Report written by Tier 1 Alpha. |