Rising Mortgage Rates Hammer Home Buyers

Rising Mortgage Rates Hammer Home Buyers

Mortgage rates are rising, and home buyers are paying the price.

The 30-year mortgage averaged 6.29% in the week ending September 22, according to Freddie Mac, the highest level in nearly 14 years. The rate is up from 6.02% a week ago and up from 2.88% a year ago.

β€œThe housing market continues to face headwinds, with mortgage rates rising again this week,” said Sam Khater, chief economist at Freddy Mac.

β€œAffected by the higher rates, home prices are going down, and home sales have gone down. However, the number of homes for sale is still well below normal levels.”

The increase in the mortgage rate hits homebuyers directly in the pocketbook. Those with a monthly budget of $3,000 can buy a $479,750 home at 6% mortgage rates, down from $621,000 a year ago, when mortgage rates prevailed at 3%, according to real estate brokerage Redfin.

“In other words, this home buyer lost $140,000 in purchasing power this year as mortgage rates doubled,” Redvin said.

Fed rate hike

Mortgage rates have risen since January, especially since the Federal Reserve has raised interest rates over the past six months. The Federal Reserve raised its target federal funds rate by 75 basis points to 3-3.25% on Wednesday. The central bank is expected to move again in November and December.

Redvin said high mortgage rates are keeping buyers and sellers on the sidelines. Buyers hesitate because they cannot afford the high home prices and high mortgage rates.

“Sellers, who are reluctant to list their homes in an environment of diminishing demand, are also motivated to stay put because they don’t want to give up on relatively low mortgage rates,” Redvin said.

β€œRising rates is necessary to fight inflation, but it comes with some painful side effects β€” especially for homebuyers,” said Chen Chao, an economist at Redfin.

With the Fed almost certain to raise interest rates further, mortgage rates are likely to rise as well, making home prices less expensive. This may cause sellers to lower their prices. In the meantime, if your choice is between renting and buying, he may pay for the rent.

More bad news

In other bad housing news, existing home sales declined for the seventh consecutive month in August, falling 0.4% from July and 19.9% ​​from a year earlier, according to the National Association of Realtors (NAR). The annual sales pace was the lowest since May 2020, early in the pandemic.

The median sale price of existing homes fell for the second month in a row β€” to $389,500 in August, down 3.5% from $403,800 in July. The price hit a record high of $413,800 in June.

To be sure, the latest figure still represents a 7.7% increase from $361,500 in August 2021, indicating that home prices may still be too expensive for most Americans.

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