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
-
These Stocks Dipped in 2025. Do They Have Value?If you are looking to add new long-term positions to your portfolio, as you should, this is the time to examine stocks that the market shuns.
-
Striking Gold (or Gas): A Financial Pro Unpacks the Nuances of Energy InvestingInvesting in the energy industry, particularly oil and gas, involves understanding the facts about how projects generate returns through cash flow and long-term asset building, while also being aware of the risks.
-
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.
-
Falling Interest Rates: What They Mean for Homeowners, Savers and InvestorsAs interest rates fall, homeowners may celebrate while savers feel the pinch. Here’s what the change could mean for your money.
-
Refinance Applications Surge as Mortgage Rates TumbleThe window to refinance is reopening as mortgage rates hit their lowest level in nearly a year. Here’s what the market shift means for homeowners.
-
Cash vs. Mortgage: How to Pay for Your Second HomeShould you buy your second home outright or finance it with a loan? Weigh the pros, cons and tax implications before making the leap.
-
Mortgage Rates Dip to Year-Low as Jobs Data DisappointsWith August job growth falling short of expectations, markets drive 30-year mortgage interest rates down, opening refinance and homebuying opportunities.
-
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.
