Homebuyers can afford less house than they could a year ago, thanks to historically high mortgage rates.
The monthly mortgage payment on a typical U.S. home, which costs about $380,000, is about $400 higher than it would be in August 2022, according to a report released today by real estate brokerage Redfin.
That’s at Wednesday’s daily average 30-year rate of 7.36%, compared to last year’s 5.5% rate.
A homebuyer with a $3,000 monthly budget can afford a $429,000 home at the current rate, while last year, they could have bought a $500,000 home at the 5.5% rate. That’s roughly a $71,000 loss in purchasing power.
Mortgage rates are now at the highest they’ve been in two decades. Coupled with historically low housing inventory, this has pushed many would-be homebuyers out of the market.
“The buyers out there right now are the ones who need to move,” Phoenix-based Redfin agent Kim Lotz said. “I’m working with one couple from out of state who are coming to Phoenix because of a job transfer; they don’t have the luxury of waiting for mortgage rates to come down.”
Redfin’s Homebuyer Demand Index, which measures requests for home tours and other buying services, was down 7% year over year.
There’s more demand in some parts of the country than in others. Nashville Redfin agent Kristin Sanchez reported more buyers than sellers in her region. “Some buyers are hoping they can get a home for under asking price to make up for high interest rates because they’re hearing the housing market is slow,” Sanchez said. “But what’s happening nationally isn’t necessarily true here,” Sanchez said. “Tennessee is a hot spot for people relocating from other states. There are plenty of jobs, and the area is starving for inventory. So despite high rates, there are more house hunters than houses for sale. Homes that are priced competitively and in good condition are typically selling at or just over asking price with two or three offers."
