Amid Escalating Rates, Homebuyers’ Monthly Payments Reach Unprecedented Highs

Mortgage News March 30, 2023

Redfin’s report shows that the average homebuyer’s monthly payment has surged to an all-time high of $2,563 this week, marking a 29% increase from $1,988 a year prior. This rise in mortgage rates has caused demand to dampen and prevented many potential sellers from listing their homes. The average U.S. home-sale price fell by 1% year over year during the four weeks ending March 5, even though monthly payments have risen to new heights.

In terms of affordability for homebuyers, a buyer on a $2,500 monthly budget can currently afford a $376,000 home with the average interest rate. This represents a notable decrease from the purchasing power of a buyer on the same budget who could have bought a $400,000 home just a month ago when mortgage rates were at 6%. If we compare it to a year ago, when the mortgage rates were at 3.85%, a homebuyer with a monthly budget of $2,500 could have purchased a house worth $480,000.

The elevated monthly payments are dissuading prospective homebuyers and sellers from listing their homes and keeping their low rates. As a result, pending home sales have decreased by 16.1% year over year and have remained stagnant compared to the previous week, contradicting the usual seasonal trend. Additionally, new listings of homes for sale have plummeted by 21.7%, representing the most significant decline in two months. Redfin’s Homebuyer Demand Index, which gauges home tours and purchasing services from Redfin agents, has declined by 4% from last week and 27% from the previous year.

As per Redfin Deputy Chief Economist Taylor Marr, inflation is currently the center of attention due to its significant impact on the housing market and mortgage rates. The Fed has announced that it may raise interest rates more than expected to curb persistent inflation. This news has kept mortgage rates elevated, but the official February inflation reading, scheduled for the next week, could cause rates to either escalate or decline significantly. Homebuyers and sellers are highly sensitive to mortgage-rate changes, and declining rates are likely to attract some of them back to the market, whereas increasing rates would push more of them away.

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