A new report from Redfin states that historically high mortgage rates are cutting into buyers’ budgets.
A homebuyer on a $3,000 monthly budget, for instance, can afford a $429,000 home with a 7.4% mortgage rate, roughly the daily average on August 23. That buyer has lost $71,000 in purchasing power since August 2022, when they could have bought a $500,000 home with an average rate of about 5.5%.
The daily average 30-year mortgage rate was 7.36% on August 23, down slightly from a peak the day before but still close to its highest level in more than 20 years.
To look at affordability another way, the monthly mortgage payment on the typical U.S. home, which costs about $380,000, is roughly $2,700 with a 7.36% mortgage rate. The monthly payment would be $400 lower – around $2,300 – with last year’s 5.5% rate.
The combination of high monthly mortgage payments and historically low housing inventory has pushed many would-be homebuyers out of the market. Home-purchase applications dropped to their lowest level since 1995 during the week ending August 18, and purchase applications were down 30% from a year earlier.
Image by Freepik.
