Typical monthly housing payments hit a new all-time high of $2,563 this week, up 29% from $1,988 a year ago, according to a new report from Redfin. That comes amidst a report earlier this week that half of Americans can’t afford a $250,000 home.
Redfin, a technology-powered real estate brokerage, says that’s dampening demand and preventing many would-be sellers from listing their homes. Rising mortgage rates sent monthly payments to new heights this week despite home prices dropping: The typical U.S. home-sale price fell 1% year over year during the four weeks ending March 5.
To look at the hit on homebuying affordability another way, according to Redfin, a homebuyer on a $2,500 monthly budget can afford a $376,000 home with today’s average rate. That’s down from the $400,000 home a buyer on the same budget could have bought a month ago when rates dropped to 6%.
Spending power has declined even more dramatically when compared to a year ago, when mortgage rates were sitting at 3.85% and a buyer with a $2,500 monthly budget could afford a $480,000 home.
The National Association of Home Builders (NAHB) reported earlier this week that 132.5 million households nationwide, nearly 49%, are unable to afford a house priced at $250,000. The nationwide median price of a new single-family home is $425,786. A total of 96.5 million households — roughly 73% of all U.S. households — cannot afford this median-priced new home, the NAHB said.
High monthly payments are deterring would-be homebuyers and sellers who want to hang onto their relatively low rates, according to the Redfin report. Pending home sales declined 16.1% year over year and were essentially flat from a week earlier, defying seasonal trends; pending sales typically increase throughout March.
New listings of homes for sale dropped 21.7%, the biggest decline in two months. That’s a reversal from January and early February when the drop off in both pending sales and new listings was easing as the housing market started to thaw. Redfin’s Homebuyer Demand Index—a measure of home tours and other buying services from Redfin agents—is down 4% from a week ago and 27% from a year ago.
“All eyes are on inflation as it continues to have a huge impact on mortgage rates and the housing market,” said Redfin Deputy Chief Economist Taylor Marr. “The Fed said this week that it may hike interest rates more than anticipated to combat persistent inflation. That news kept mortgage rates propped up, but next week’s official February inflation reading could send them meaningfully up or down. Homebuyers and sellers are ultra-sensitive to mortgage-rate fluctuations, so rates starting to decline would likely bring some buyers and sellers back—and rates rising would push more away.”
Some measures of homebuying demand are up from the low points they reached last fall. Redfin’s Homebuyer Demand Index is up 16% from its late-October trough and pending home sales aren’t declining nearly as fast as they were in November.
Leading indicators of homebuying activity:
- For the week ending March 9, average 30-year fixed mortgage rates rose to 6.73%, according to Freddie Mac data, marking the fifth straight week of increases. The daily average was 7.05% on March 8, per Mortgage News Daily.
- Mortgage-purchase applications during the week ending March 3 increased 7% from a week earlier, seasonally adjusted—but mortgage activity is still quite slow; applications had dropped to a 30-year low the week before and they’re down 3.7% from the low point they hit in October. Purchase applications were down 42% from a year earlier. This is according to the Mortgage Bankers Association.
- The seasonally adjusted Redfin Homebuyer Demand Index fell 4% from a week earlier and 2% from a month earlier during the week ending March 5. It was down 27% from a year earlier.
- Google searches for “homes for sale” were up about 48% from the trough they hit in December during the week ending March 4, but down about 13% from a year earlier.
- Touring activity as of March 4 was up about 16% from the start of the year, compared with a 23% increase at the same time last year, according to home tour technology company ShowingTime.
