- The average 30-year fixed mortgage rate achieved 8% for the first time since 2000.
- According to a recent report from real estate firm Redfin, individuals looking to buy homes will need to make $114,627 in order to afford the average priced home in America.
- “Housing affordability is incredibly challenging for potential home buyers,” said Jessica Lotz, deputy chief economist and vice president of research at the National Association of Realtors.
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The average 30-year fixed mortgage rate reached 8% for the first time since 2000, pushing housing financing costs to historically high levels.
Given higher prices and higher interest rates, individuals looking to buy homes will need to make $114,627 in order to afford the median-priced home in the U.S., according to a recent report from real estate firm Redfin, which analyzed average monthly mortgage payments in August 2023 and August 2022 .
The firm considers the monthly mortgage payment to be affordable if the home buyer does not spend more than 30% of their income on housing. At the time of analysis, the average 30-year fixed mortgage was 7.07%.
Redfin found that the median US household income in 2022 was $75,000. According to the real estate firm, hourly wages in the US have increased 5% in the past year, but have not been able to keep up with rising housing costs.
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Experts claim that current market trends have made home ownership unattainable for many.
“Housing affordability is incredibly challenging for potential home buyers,” said Jessica Lotz, deputy chief economist and vice president of research at the National Association of Realtors.
Redfin found that in August 2020, the average monthly mortgage payment was $1,581, based on an average interest rate of 2.94%. At the time, the average cost of a home was approximately $329,000, and homebuyers would need an annual income of $75,000 to afford it.
However, those record-low levels were the result of “highly unusual events, such as the pandemic and the near-catastrophic financial crisis,” said Mark Hamrick, senior economic analyst at Bankrate.com.
These days, the typical monthly mortgage payment for an American home buyer stands at $2,866 — an all-time high, according to Redfin.
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Although the economy and housing markets experience cycles, mortgage rates are unlikely to significantly decrease in the near future, Hamrick said, especially since the Federal Reserve is expected to maintain a high benchmark rate for an extended period.
Additionally, the limited supply of homes for sale is “a direct result of the lock-in effect,” Hamrick said. A lower supply puts upward pressure on prices as current homeowners are less inclined to move or put their homes on the market because they do not want to trade their mortgages with lower rates for significantly higher priced mortgages. Are.
“Higher rates are also increasing the cost and availability of builder development and construction loans, which hurts supply and contributes to lower housing affordability,” NAHB President Alicia Huey, a homebuilder and developer in Birmingham, Alabama, previously told CNBC. Gives.”
“People need to know that this pain will pass,” said Melissa Cohn, regional vice president of William Revis Mortgage in New York. “Interest rates will be lower in the next year or two and people will have the ability to refinance.”
Competition for homes in the market is likely to worsen in a few years as interest rates remain low, he said. There are many buyers who remain on the sidelines due to the current high rates.
“When interest rates decrease, everyone will reenter the market,” Cohn said.
Experts suggest that the decision to purchase a home is highly personal and potential home buyers should proceed with caution.
“When deciding to purchase a home, it depends on personal finances, stability, and the length of time they plan to own a home,” Lotz said.
In addition to mortgage costs, potential home buyers should also consider their other financial objectives, as well as maintenance costs, Hamrick said. According to a Bankrate survey, the biggest regret among recent home buyers was not being prepared for maintenance and other costs.
However, “home ownership is the primary means of wealth creation in this country,” Hamrick said.
The typical homeowner possesses property worth $396,200, while the average renter has $10,400, Lautz said.
First-time homebuyers may consider tapping into retirement funds or taking advantage of first-time homebuyer programs that may provide down payment assistance. Buyers may also explore a temporary buydown, which is paid by the real estate broker or seller, to help reduce the monthly payment, Cohn said.
However, experts emphasize the importance of working with professionals in the long run for potential buyers. Buyers should explore all options, consult with realtors regarding overlooked areas, and speak with mortgage brokers to consider all available loan options, Lotz said.
“This will potentially be the most expensive transaction in a person’s lifetime,” Hamrick said. “This should be done as well as possible for the benefit of the buyer.”
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