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
Be a smarter, better informed investor.
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
-
Choose a Beneficiary for Your Estate Plan: It's Not 'Duck, Duck, Goose'Choosing a beneficiary for your 401(k), insurance policy or similar assets is crucial for estate planning. Here is how to do it, and six pitfalls to avoid.
-
T-Mobile's Free iPhone 17 Deal: A Smart Switch or a Hidden Catch?Receive a free iPhone 17 when you switch to T-Mobile. We'll explain whether the deal is worth it.
-
Can You Afford a Million-Dollar Home on a $250,000 Salary?It’s more than the sticker price — mortgage rates, down payments, taxes and debt all factor into whether a million-dollar home fits your budget.
-
Why a Landmark Real Estate Commission Settlement Hasn’t Lowered Costs for HomebuyersThe 2024 NAR settlement promised commission transparency and negotiation —but one year later, average fees remain unchanged. See why change has been slow and what it means for homebuyers and sellers.
-
Lock or Float? How to Decide on Your Mortgage RateMortgage rates move daily, here’s how to know if you should lock in a rate now or let it float until closing.
-
The Role of a Mortgage Underwriter in Buying a HomeFrom fast-track approvals to manual reviews, here’s what to expect (and how to avoid delays) in the underwriting process.
-
My Mortgage Rate is 6.5%. Should I Refinance If Rates Fall By Half a PointA half-point dip may not be enough to offset closing costs. Here's the magic number that makes refinancing pay off.
-
How Home Appraisals Work — and What the Final Value MeansFrom comps to contingencies, here’s what a home appraisal reveals about your property’s true worth.
-
Should You Sell Your House Now or Wait? What to ConsiderWith rates holding steady and market shifts ahead, here's how to decide whether to list your house or wait.
-
The 28% Rule for Housing: Does It Still Work in Today’s Market?Rising home prices and stubborn mortgage rates put this long-standing rule to the test.
