Cars And Big Houses Are Becoming Unbuyable

Photo by Sarah Brown on Unsplash

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Big loans for everyday(ish) people are becoming more of an impossible dream.

Reports emerged on Monday that Americans looking to buy a car for less than $20,000 have now been reduced to a single option, the Mitsubishi Mirage. Simultaneously, the Wall Street Journal reported houses on the upper end of the price spectrum are becoming unaffordable because banks are jacking up rates on the chunky loans that come with them.

Loan Snarks

According to Cox Automotive data seen by the WSJ, it now takes the average American 42 weeks of income to pay off a car, up from 33 weeks before 2020. It’s not a huge surprise that cars are more expensive now, what with the continual-interest-hike of it all, but more worrying is defaults spiking to levels similar to 2008, given the US economy is doing pretty well in other areas, e.g. with unemployment sitting at historic lows.

At the other end of the loan pipeline, banks are becoming allergic to “jumbo” house loans. These are property loans of more than about $730,000 to wealthy buyers, and have traditionally (read: post-2008) been viewed as a reliable source of income for banks, so they carried attractively low interest rates. Now that dynamic is shifting:

  • According to data from mortgage data company Black Knight reported by the WSJ, smaller property loans currently come with an average interest rate of around 7.2%, whereas jumbo loans’ interest rates sit at an average 7.44%.
  • March’s domino-like bank failures might be partly to blame for banks’ newfound temerity, as the now-defunct First Republic Bank was a pioneer in low-interest loans for wealthy buyers. “The shock wave has psychologically affected bank executives,” one CEO of a firm that buys Jumbo mortgages told the WSJ.

Striking Isn’t Just For the Stars: Returning to the automotive world, prices could get worse before they get better. There’s a possibility that the United Auto Workers union could go on strike next month as it lobbies for assurances on workers’ jobs as it fears the growing wave of EV production could end up cutting jobs, Axios reported. Some people say a man is made out of mud, but unless he’s made of rare-earth metals he might not be much use to the EV production line…