The average homebuyer lost $71,000 in purchasing power over the last year as mortgage rates refuse to ease
- The average homebuyer lost $71,000 in purchasing power over the last year, a Redfin analysis shows.
- That's due to high mortgage rates, with the average 30-year fixed rate nearing 7.5% over the last week.
The average homebuyer lost around $71,000 in purchasing power over the last year, according to a new Redfin analysis
That's due in large part to high mortgage rates, which have created a housing affordability crisis by raising the cost of borrowing for prospective homebuyers.
Mortgage rates just touched a fresh 23-year-high over last week, with the average 30-year fixed rate clocking in at 7.48% according to Mortgage News Daily. At that rate, a homebuyer with a $3,000 a month budget for mortgage payments can afford a $429,000 home, Redfin estimated, around the median US home price of $422,137.
But that's around $71,000 less from what those buyers could have afforded in August of last year, the real estate listings site said. Back then, a $3,000-a-month budget could have financed a $500,000 home, given that the average 30-year fixed rate hovered around 5.5%.
Housing affordability conditions have been strained over the past year thanks to high interest rates in the economy, which have influenced mortgage rates to stick close to a two-decade-high. That's raised the cost of borrowing for homebuyers, sidelining many out of the current housing market.
High rates have also indirectly raised home prices, as many existing homeowners are looking to cling onto their properties that were financed at low rates years ago. That's created a supply-demand imbalance, which has pushed sales prices even higher.
Home prices are now around 40% higher than what they were before the pandemic, according to a previous Redfin analysis, and the median sales price for a house is just 2% away from retesting an all-time-record reached last summer. Existing home sales, meanwhile, are down around 19% from the previous year, according to Fannie Mae data.
But affordability woes likely aren't going away anytime soon, as mortgage rates are expected to remain elevated over the next few years. Rates would need to dial back to the 5% range to unlock more inventory and put downwards pressure on home prices, industry veterans say, though the 30-year fixed rate is largely expected to ease to just 6% by the end of this year.