When mortgage rates hit their highest level in 20 years this week, it brought homebuyers' monthly mortgage payments along for the ride, according to Redfin.
Redfin says a buyer with a $3,000 monthly budget can afford a home of $419,000 with a 7.7% mortgage rate, which was roughly the daily average on Oct. 4. That same buyer lost about $38,000 in purchasing power since last October when they could have afforded a $457,000 home with a 6.6% interest rate. Going back two years that same buyer might have been able to purchase a $595,000 home with 3.5% interest rates.
Home prices are also cutting into homebuyers' budgets. The typical U.S. home sold for $371,000 during the four weeks ending Oct. 1, up 3% from a year earlier. That’s because there aren’t enough homes for sale. High housing costs are pushing demand down, with mortgage-purchase applications dropping to their lowest level in nearly 30 years.
Inventory is still a problem, with the total number of homes for sale down 14%.
But there could be a glimmer of hope. According to Redfin, more homeowners are listing their homes for sale after months of steady decline. New listings rose 3% in September, and this fall, listings haven’t declined as much from the summer as they typically do.
"That may be partly because listings didn’t have much more room to fall—but nonetheless, it’s a glimmer of hope for buyers because it means they have a bit more to choose from and could eventually ease price increases," Redfin Economic Research Lead Chen Zhao said.
However, mortgage rates could rise again.
“There are several reasons why mortgage rates are still climbing,” said Zhao. “The Fed hinted that another interest-rate hike before the end of the year is likely, the latest job market data came in stronger than expected, and the yield curve is steepening as investors prepare for higher rates for longer. Turmoil in Congress isn’t helping, either, as the clash among House Republicans stemming from the narrowly missed government shutdown is causing volatility in stock and bond markets.”
