Rising mortgage rates and inflationary pressures have hit the housing market substantially over the last year, leaving homebuyers with considerably less purchasing power than in 2022, a new report shows.
Although the Federal Reserve has paused its rate-hiking campaign, mortgage rates remain elevated. As of October 11, the average 30-year mortgage rate stands at 7.83%, according to Bankrate — near more than 22-year highs. A recent report from Redfin shows mortgage rates have climbed from 6.6% to 7.7% year over year. Mortgage rates directly impact the monthly housing payment new home buyers are responsible for. As such, budgets won’t stretch nearly as far as they did last year.
For example, the lower rates of early 2022 (about 3.5%) with a $3,000 monthly payment budget would have allowed for a home priced at $595,000. Purchasing a home today with a 7.7% interest rate and the same monthly payment budget would only buy you a $419,000 home. That’s a drop of $176,000 in purchasing power over less than two years.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For a closer year-over-year comparison, October of 2022 saw rates at around 6.6%. If you bought a home at that time, you’d still be able to afford almost $40,000 more than today’s buyers. That $3,000 monthly budget would’ve allowed a home purchase of $457,000.
High prices and low inventory
Buyers willing to brave the high-rate environment will also need to brace for sticker shock as home prices have risen as well. With housing inventory still struggling to reach a balanced supply, the remaining home sellers on the market are asking for more.
In the four weeks ending October 1st, the median sale price for U.S. homes overshot last year’s prices by 2.9% at approximately $371,000, according to Redfin’s latest report. The asking price for those homes was even higher at almost $390,000 — a 4.6% increase from 2022. So while high rates are deterring many buyers, the inventory crunch is helping inflate the prices of homes hitting the market and making it more expensive than ever to purchase a home.
Redfin’s report also found that monthly mortgage payments are at the highest recorded level. During the reporting period ending October 1st, the median monthly mortgage payment was $2,710 — up by 10% from last year.
Use our tool, in partnership with Bankrate, to compare mortgage rates from different lenders.
Inventory inching higher
Although housing inventory has been slow to catch up with demand, there was a recent bump in the supply. September’s additions to the housing market created the highest number of months in supply since March. Typically the benchmark is four-to-five months of supply, and currently, we’re at 3.3 months. Inventory still isn’t ideal for potential buyers since sellers have the upper hand, but it’s an improvement nonetheless.
Related Content
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
What to Know About Portable MortgagesA closer look at how portable mortgages would work, who might benefit and why the concept is gaining attention amid high rates and limited supply.
-
A New Kind of HELOC Lets Homeowners Fund Remodels on Their TermsFinance home upgrades gradually, using the equity you already have.
-
Selling a Haunted House? What You Have to Tell Buyers (and What You Don’t)You don’t need ghosts to spook buyers, sometimes a home’s past is enough. Here’s what sellers should know about disclosure laws, pricing and perception when a property has a haunted history.
-
A Vacation Home Sounds Dreamy, But Is It the Right Move for You?A vacation home can be a relaxing getaway or a financial burden. Learn the pros and cons of owning a second home and how to decide if it fits your goals.
-
Planning a Major Home Renovation? 3 Smart Ways to Finance ItFrom HELOCs to personal loans, here’s how to pay for a major home renovation without draining your savings.
-
I Made Some Mistakes Buying My First Home. Here's How I'm Making Sure It Doesn't Happen AgainHome Buying Buying a home can be a complicated process. I'll show you some common mistakes we encountered and provide expert tips to help you avoid these.
-
How Location Changes the Math on Owning a Vacation HomeThe market you choose can make your dream getaway a smart investment — or an expensive mistake.
-
Home Equity in Retirement: Should You Sell, Borrow or Rent?Learn how to preserve your property's value, tap equity for income and make smart choices about downsizing, renting or leaving a legacy.
