In December, the median price for an existing home in California clocked in at $774,580 To put that in perspective, that’s more than double the median home price nationwide. 

Despite the average price tag, the state of California wants to clear the path to homeownership for first-time, low-income buyers through the Forgivable Equity Builder Loan assistance program. 

According to the Los Angeles Times: “To qualify, you must be a first-time home buyer and have a household income of no more than 80% of the median income in your area… In Los Angeles County, that means you need a household incomeof $68,880 or less.” 

So if you happen to be broke enough? “You can get up to 10% of your home’s purchase price to use toward your down payment.” 

Although the homebuying seed money reportedly carries no interest, homebuyers would still need to secure a mortgage loan, at going interest rates, for the remaining 90% of the home’s price. 

As for loan forgiveness, there is one catch: “You may have to pay back a portion of the loan if you occupy the home for less than five years,” says the California Housing Finance Agency website, but what portion and at which interest rate — if any — are indeterminate. 

Here’s the thing: Whatever the government subsidizes, you get more of. In the case of the Forgivable Equity Builder Loan program — FEBL? — if California’s aiming for more house-poor, on-the-bubble Californians… mission accomplished. 

As if the state doesn’t already have the highest rate of homelessness in the U.S. 

For more on homeownership, read on… 

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Your Rundown for Wednesday, March 1, 2023...

Mortgage Interest Rates: When High Is Low

Mortgage rates are… too low. 

Come again? 

Even though mortgage interest rates have just about doubled since the Federal Reserve started hiking rates last year in an effort to tame inflation, mortgage rates haven’t reflected the Fed’s favorite inflation gauge, CPI. 

Just take a look at the following chart (Apr. 1971 - Feb. 2023): 

Red line: Mortgage interest rates (30-year term)
Blue line: Consumer Price Index (CPI)

Mortgage interest rates since 2000, for example, on a 30-year term, averaged 5% — 2.5 points above the average cost of living (2.5%). 

In January, however, a 30-year loan rate averaged 6.27%, below the 6.4% inflation rate. 

Just how much of an outlier is this imbalance? 

History shows a similar 20-month streak, ending in July 1975, when consumer prices rocketed because of the oil embargo. 

“In those 20 months, mortgages averaged 9.1% vs. 10.7% inflation — that’s a 1.6 percentage-point gap,” notes an article at The Orange County Register. 

“In the current streak, which started in April 2021, mortgages averaged 4.4% vs. 7% inflation, with loans sitting 2.6 points below the cost of living’s surge.” 

And that spread was even more extreme in March 2022: a 4.3 point gap between mortgage rates (4.2%) and inflation (8.5%). 

“Yes, 6%-plus mortgages will throttle home sales and put huge pressure on housing pricing. Yes, that’s painful.

“But this is simply the Fed boosting mortgage rates to nearly the inflationary pace. That’s still cheap looking through a historical lens.” 

But nothing is “cheap” if you can’t afford it, right? And how have current mortgage interest rates affected buying power? 

“A buyer able to afford a $1.02 million home when rates were 3.25% could only afford a $741,000 home when rates hit 6%,” points out Paradigm’s options-trading expert Alan Knuckman. 

Which, you’ll note, doesn’t even keep up with the average California home price. 

Market Rundown for Wednesday, March 1, 2023

S&P 500 futures are up 0.25% to 3,984. 

Oil’s lost 0.75% to $76.46 for a barrel of West Texas crude. 

Gold is up 0.45% to $1,845 per ounce. 

And Bitcoin is up almost 2% to $23,730 at the time of writing. 

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