Mortgage rates reach their highest level in 20 years
For the week ending Oct. 27, the average 30-year fixed mortgage rate shot up to 7.08%. According to Freddie Mac, this is the first time that this rate has broken the 7% threshold in 20 years, since April 2002.
Crunch the numbers on how this affects housing affordability, and the picture turns even more frightening.
“Combined with rising home prices, higher mortgage rates have significantly increased the cost of a monthly mortgage payment, up more than 70% from one year ago, sapping the purchasing power of shoppers,” notes Realtor.com® Chief Economist Danielle Hale in her recent analysis of emerging housing markets.
In September, home prices hovered at a national median of $427,250—and for the week ending Oct. 22, prices continued to rise by 13% compared with the same week last year. That’s a slight drop from the previous week’s rise of 13.2%, but it’s also the 43rd week straight of double-digit expansion.
“Home price growth moderated but remains at a double-digit pace and, alongside higher rates, is putting a big dent in home shopper budgets,” says Hale in her review of the week’s housing data. “With affordable homebuying options dwindling, some shoppers are looking elsewhere.”
In other words, buyers are casting their eyes even farther afield for deals. In fact, Hale adds that the majority of home shoppers are now searching across state lines.
An upside to rising mortgage rates: More homes on the market
For the week ending Oct. 22, despite the number of new sellers entering the market dwindling by 13% from a year earlier, overall housing inventory (of new and old listings) shot up by 36%. That’s the biggest jump in the number of homes for sale seen in 16 weeks.
The reason why so many homes are sitting on the market is that homebuyers just can’t afford what they used to.
“Higher mortgage rates coupled with higher home prices have drastically curtailed buying power, and with it sales activity,” says Hale.
Many of these homes will stick around on the market gathering cobwebs longer than usual, too. While properties currently linger for a median of 50 days, for the week ending Oct. 22, they spent a whole week longer on the market compared with a year earlier, a pace that’s slowed for 13 weeks straight.
“For buyers, it may mean a bit more time to think through options, depending on your location,” says Hale. “It may not be a buyer’s market yet, but this trend is certainly more buyer-friendly.”
In other words, nervous buyers who brave today’s market may come to realize that it’s not quite as bad as the doomsayers suggest.