Home buyers have lost a significant amount of purchasing power over the past six weeks, according to a new report from Redfin. Those on a $3,000 monthly budget lost $33,250 in purchasing power as the daily average 30-year fixed mortgage rate rose to 7% yesterday — up one percentage point since mid-September, marking the highest rates have been since the start of summer.
Currently, a homebuyer on a $3,000 monthly budget can afford a $442,500 home with the current 7% mortgage rate, but a year earlier, they could have afforded a $475,750 home with a 6.11% rate. But with rates constantly fluctuating, it's a game of relativity. That buyer still has $17,000 more in purchasing power than they would have had in April, the report noted, when mortgage rates peaked at 7.5%.
The recent uptick in mortgage rates is disappointing news for buyers who missed out on a brief window of time when rates were much closer to 6% than 7%. The national median home price is $428,000, and Redfin estimates that monthly payment with a 7% rate would be $2,895, which is $200 higher than the monthly payment with a 6.11% rate.
Redfin’s researchers explain that mortgage rates are jumping largely because investors are worried about increased government spending after the election. Plus, the recent strong jobs report and inflation data proves that the economy is enduring, lowering the chance of a significant rate cut at the next Federal Reserve meeting.
“My advice for buyers is to focus on finding a house they love and try to negotiate on things they have some control over, like the sale price and home repairs,” said Redfin Economic Research Lead Chen Zhao. “Sellers should know Redfin agents are reporting that there are buyers out there, but they’re mostly looking for move-in ready homes in good condition.”
Affordability Weighs On The Upcoming Election In Swing States
Housing affordability is a top voting issue this year, according to a recent Redfin survey, with the report stating that a recent uptick in mortgage rates could impact voters’ decisions in the upcoming presidential election. Five of the seven swing states have median home-sale prices lower than the national median of $428,000, with only Nevada ($468,000) and Arizona ($442,000) have higher prices.
In Georgia and North Carolina, the typical home goes for $377,000 and Redfin adjusts the buyer’s monthly budget down to $2,500, since income is also lower on average. That buyer can purchase a $368,750 home with a 7% mortgage rate, compared to the $396,500 home they could have purchased with a 6.11% rate in mid-September. That translates to a loss of $27,750 in purchasing power.
Median prices are much lower in Michigan ($266,000), Pennsylvania ($296,000) and Wisconsin ($316,000), yet the typical buyer also has a lower budget of $2,000, so they can afford a $295,000 home with a 7% rate. Six weeks ago, they could have bought a $317,250 home with a 6.1% rate, translating to a loss of $22,250 in purchasing power.
