Higher mortgage rates

Redfin cites Freddie Mac data showing that 30-year mortgage rates in the U.S. are now at 5.51% — substantially higher than the 3.11% at the beginning of this year.

A higher mortgage rate translates to higher monthly payments on a same-sized loan.

Therefore, if you are planning to buy a house, a higher mortgage rate means you might not be able to afford the same house that you were eyeing earlier.

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High home prices

Redfin’s latest data suggests that property prices are no longer soaring: in the four-week period ended July 10, the median home sale price in the U.S. declined 0.7% from the peak during the four weeks ended June 19.

That said, at $393,449, the median home sale price still represented a 12% increase year over year. Meanwhile, the median asking price of newly listed homes rose 14% year over year to $397,475.

If you want to buy a home with the median asking price at the current mortgage rate, you’d be looking at a monthly mortgage payment of $2,387. A year ago — when homes were cheaper and mortgage rates were at 2.88% — you’d only need $1,663.

In other words, high home prices combined with higher mortgage rates mean you would need to budget 44% more for monthly payments.

Inflation

And Americans are already facing tight budgets due to inflation.

In June, the consumer price index rose 9.1% from a year ago, marking its fastest increase since November 1981. The index measures the prices for a basket of everyday goods and services related to the cost of living.

Inflation erodes our purchasing power. With consumer prices increasing substantially, people have less money to buy a home.

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Falling stock market

Finally, all of the above is happening when stocks are dropping to the floor.

U.S. equities had a strong rally in 2020 and 2021. But in 2022, sentiment has completely changed.

The S&P 500 Index is down 17% year to date, the Dow Jones Industrial Average slipped 12%, while the tech-laden Nasdaq Composite plunged 25% during the same period.

Considering the number of people that hold stocks — or have investments in funds that hold stocks — this market downturn has led to plenty of bleeding portfolios.

With this economic backdrop, some house hunters have no choice but to drop out of the market.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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