How Rising Mortgage Rates Are Impacting Home Affordability
By The housing market has seen dramatic ups and downs over the past five years.[0] Prices have increased, but so have mortgage rates, leading to an overall decrease in affordability. With home prices cooling, mortgage rates hovering above 6%, and a surge in housing prices from the pandemic low, the real estate market has become more uncertain.[1]
The average rate on a 30-year fixed-rate mortgage increased to 6.73% in the first week of March, according to Freddie Mac's benchmark rate analysis.[2] The National Association of Realtors (NAR) reported that the January median home price nationally was up 1.3%, compared to a year ago.[2] In certain regional markets, the cost of goods is still increasing at a rate close to 10%.[3]
It may be possible for home buyers to find less expensive houses now that they can still afford, even at today's higher rates.[1] However, higher mortgage rates have added hundreds of dollars to the typical buyer's home cost, offsetting any advantage that may have been gained as a result of declining prices.
Redfin's data demonstrates the effect that the steep rise in mortgage rates has had on the affordability of homes. In February, the National Association of Home Builders reported that US housing affordability had reached an all-time low.[4] Mortgage interest rates being at a high, that impacts the average American's ability to purchase a home, as home prices have cooled.[5]
In certain locations, merchants have a greater benefit.[6] Prices remain robust and homes are selling quickly in these real estate markets.[7] According to Insurify, Boise, Austin, and Phoenix are among the places where home sellers still reign supreme.[7]
Property markets should enjoy greater stability when central banks slow or pause their campaign of raising interest rates to tame inflation. Housing prices should experience more steadiness if central banks decide to decelerate or halt rate hikes. It is anticipated that global inflation will decline from nearly 9% in 2020 to approximately 6.5% this year and will continue to decrease in the following year, as the result of the rate increases that have already reduced supply restrictions.[8]
0. “Housing Market 2023: Prices Continue on Downward Trend, Here's What That Means” GOBankingRates, 16 Mar. 2023, https://www.gobankingrates.com/investing/real-estate/housing-market-prices-continue-on-downward-trend-what-that-means
1. “Here's Just How Much Housing Affordability Has Been Impacted by Interest Rates” The Motley Fool, 14 Mar. 2023, https://www.fool.com/the-ascent/mortgages/articles/heres-just-how-much-housing-affordability-has-been-impacted-by-interest-rates
2. “The 25 Hardest Places To Sell a Home” AOL, 16 Mar. 2023, https://www.aol.com/finance/25-hardest-places-sell-home-120110199.html
3. “Housing market woes still pushing many home buyers to make compromises” USA TODAY, 16 Mar. 2023, https://www.usatoday.com/story/money/personalfinance/real-estate/2023/03/16/home-buyers-compromise-for-housing-market/11479877002/
4. “First-time homebuyers battling rapid decline in affordability: Numbers ‘just not working'” Fox Business, 12 Mar. 2023, https://www.foxbusiness.com/real-estate/first-time-homebuyers-detail-affordability-battle-worse-2008-numbers-not-working
5. “The typical home for sale is becoming more attainable for buyers” Business Insider, 16 Mar. 2023, https://www.businessinsider.com/typical-home-for-sale-becoming-more-attainable-for-buyers-2023-3
6. “As the Housing Market Sputters, These Are the Best U.S. Cities for Home Sellers” Realtor.com News, 14 Mar. 2023, https://www.realtor.com/news/trends/as-the-housing-market-sputters-these-are-the-best-cities-for-sellers-right-now
7. “Home Sellers Still Have the Upper Hand in These 10 Markets” msnNOW, 17 Mar. 2023, https://www.msn.com/en-us/money/realestate/home-sellers-still-have-the-upper-hand-in-these-10-markets/ss-AA18LJGl
8. “These are the countries with the biggest house price drops” World Economic Forum, 17 Mar. 2023, https://www.weforum.org/agenda/2023/03/charted-where-house-prices-have-fallen-in-the-last-quarter/
