Mortgage rates have seen a sharp rise since late October, but we are still far from the historically low rates of 3% that were prevalent just two years ago. The impact of these rising rates is evident in the housing market, with existing home sales experiencing a significant decline in October.
According to Bankrate, 30-year mortgage rates reached over 8% in October, while Freddie Mac’s survey reported a 23-year high of 7.8%. These figures are more than double the rates seen in October 2021, making monthly costs too high for many potential homebuyers.
In a recent analysis conducted by USA TODAY, it was found that potential homeowners’ buying power has been cut in half in most markets over the past two years. Median family incomes in these markets are well below the amount required to comfortably service mortgages on homes at each city’s median listing price.
To illustrate this impact, let’s take a look at Des Moines, Iowa. In October, the median home list price in Des Moines was approximately $365,000, slightly below the U.S. median. However, mortgage rates in October have significantly affected the affordability calculations. The same situation can be seen across the country, according to the Atlanta Fed’s Home Ownership Affordability Monitor.
The increasing mortgage rates have outpaced the growth in incomes. While Americans’ incomes have risen about 9% since 2021, the monthly principal and interest payments on mortgages have increased by a staggering 81%, as reported by the National Association of Realtors’ affordability index.
The good news is that there are signs that mortgage rates may have peaked. In recent weeks, rates have started to slide as the consensus grows that the Federal Reserve’s policymaking committee may be done or near done raising rates. This sentiment is reflected in the expectations of investors who bet on interest rate movements.
In conclusion, the impact of rising mortgage rates on housing affordability is evident across the country. As rates continue to fluctuate, potential homebuyers need to carefully consider their options and budget accordingly to ensure they can comfortably afford their dream home.
1. How have mortgage rates changed in recent months?
Mortgage rates have experienced a significant rise since late October, but there are indications that they may have peaked and started to slide in recent weeks.
2. How has the rise in mortgage rates affected housing affordability?
The increase in mortgage rates has reduced potential homeowners’ buying power, with median family incomes falling short of the amount needed to service mortgages on homes at each city’s median listing price.
3. Have incomes kept up with the rising mortgage costs?
While Americans have experienced a 9% increase in incomes since 2021, the monthly principal and interest payments on mortgages have risen by 81%, outpacing income growth.
4. Is there hope for potential homebuyers?
There are positive signs that mortgage rates may have peaked, with rates starting to slide and expectations that the Federal Reserve may not make further policy changes in the near future.
5. What should potential homebuyers consider in light of these changes?
Potential homebuyers should carefully assess their financial situation and budget accordingly to ensure they can afford their desired home, taking into account the impact of mortgage rates on affordability.