Higher Mortgage Rates = Higher Payments = Lower Prices

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What's Happening Today

How are you feeling about your finances lately? The economy? Do you believe there are rosier times ahead, or are you worried about a recession? If you are singing a more optimistic tune, you've got company, according to the Consumer Confidence Index from The Conference Board.

Consumer confidence rose for the second straight month in September, increasing to 108. Consumer feelings about their current circumstances also rose, while expectations for the future also ticked upward to 80.3 in September from 75.8 in August. But even with the increasing consumer confidence, inflation and recession worries remain, as the Federal Reserve continues to remain hawkish—they're interested in hiking rates—to fight inflation. And you don't need to look farther than the housing market to see the impact.

Home prices have been taking a hit as the average rate on a 30-year fixed-rate mortgage remains above 6% for the second straight week, according to data from Freddie Mac. Housing prices decelerated in July, up 15.8% since last year, down from the 18.1% year-over-year increase in June, according to the latest CoreLogic Case-Shiller Home Price Index.

The price slowdown comes as higher mortgage rates have discouraged some potential homebuyers who might not be able to afford more expensive mortgage payments each month in addition to already high home prices.

I've said this before but it bears repeating: If you are waiting for a housing market crash to make homes more affordable, you'll likely be waiting a while. A recession could bring lower home prices and interest rates, but there are still more interested buyers than there are homes to purchase. And unlike the crash over a decade ago, American households are in a better position now to continue making home payments.

- Kristin

Editors' Picks

Consumer Confidence and Its Impact on the Markets (The Balance)

House Sales Collapse as UK Lenders Withdraw Mortgage Offers (Bloomberg)

How Much Income Do You Need To Buy a House? (The Balance)

Is Home Insurance Included in Your Mortgage? (The Balance)

Orders for Long-Lasting Goods Fall for Second Straight Month (The Wall Street Journal)

Student Loan Forgiveness Is Coming: Here's How To Prepare (The Balance)

Options 'In the Money' vs. 'Out of the Money': What's the Difference? (The Balance)

95% of Federal Student Loan Borrowers Can Get Forgiveness (The Balance)

Term of the Day

28/36 Rule of Thumb for Mortgages

When mortgage lenders are trying to determine how much they'll let you borrow, your debt-to-income ratio (DTI) is a standard barometer. The 28/36 rule is a common rule of thumb for DTI.

"The 28/36 rule simply states that a mortgage borrower/household should not use more than 28% of their gross monthly income toward housing expenses and no more than 36% of gross monthly income for all debt service, including housing," Marc Edelstein, a senior loan officer at Ross Mortgage Corporation in Detroit, told The Balance via email.

It's important to understand what housing expenses entail because they include more than just the raw number that makes up your monthly mortgage payment. Your housing expenses could include the principal and interest you pay on your mortgage, homeowners insurance, housing association fees, and more.