According to the latest data from lender Freddie Mac, mortgage rates are nearing 8 percent as they rose for the fifth week in a row, putting the dream of home ownership increasingly out of reach for large swaths of Americans.
The popular 30-year fixed-rate mortgages have risen to around 7.6 percent, the highest level in more than two decades. According to the real estate lender, the 15-year interest rate is just under 7 percent, making it the highest in 20 years.
The continued rise in mortgage rates has dampened demand for home purchases.
“For the fifth consecutive week, mortgage rates have risen as ongoing market and geopolitical uncertainty continues to grow,” Freddie Mac chief economist Sam Khater said in a statement. “The property market remains subject to significant affordability constraints. As a result, purchasing demand remains at a three-decade low.”
The rise in mortgage rates comes as the Federal Reserve raised rates to 5.25 percent to 5.50 percent, a two-decade high, to combat inflation, which had skyrocketed to historic levels. As a result, the cost of credit has also increased, negatively impacting consumers’ ability to obtain affordable credit, including mortgages.
Analysts say this is the worst time in 15 years to be able to afford to buy a home. Buyers with an average income of about $79,000 who can afford a 10 percent down payment on a new home that costs about $350,000 would be forced to do so Spend 40 percent of your income on monthly paymentsaccording to real estate platform Zillow.
Financial experts have long advised households not to spend more than 30 percent of their income on housing costs to avoid the phenomenon of “house poverty.” This is the case when a large proportion of household costs are spent on paying off a mortgage, leaving little for other expenses.
In order to be able to afford a house of this standard, a The potential buyer would need to earn at least $107,000said Zillow senior economist Nicole Bachaud.
“If mortgage rates rise to 8 percent, the income needed to afford a typical U.S. home would rise to nearly $114,000,” Bachaud wrote this week.
For potential buyers who manage to come up with a 20 percent down payment, they would need to earn at least $95,000 with a mortgage rate of 8 percent.
This type of income exceeds the wallets of most Americans. In 2022, tThe average median household income was nearly $74,600according to data platform Statista.
High mortgage rates also force sellers to stay in homes they bought during periods of low borrowing costs. This has also resulted in a limited supply of homes for sale, increasing competition, which in turn has led to high prices.
All is not lost for buyers
Bachaud noted that this is not a guarantee that interest rates will rise to 8 percent.
“The safest bet is that interest rates will remain volatile and remain high for the foreseeable future,” she wrote.
However, it may not be all doom and gloom for potential buyers. As fall begins in earnest, prices could fall to give some hope to those who can stretch their budgets to afford the high interest rate environment. There are also reports of new construction, which could increase the supply of housing and help lower prices.
“More homes means less competition for each home, which reduces pricing pressure, and builders often have the flexibility to offer creative financing options such as installment purchases to ease the bill for buyers,” Bachaud wrote.
“Ultimately, building more homes to address the housing shortage is the only sustainable way to improve affordability and enable more people to access home ownership,” she added.