Home News Rising interest rates cost typical homebuyers 16% of purchasing power

Rising interest rates cost typical homebuyers 16% of purchasing power

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As interest rates rise, a significant proportion of homebuyers lost up to $ 165,000 in new home purchasing power last year. Recent Survey by Online Real Estate Agent Redfin..

Interest rates on fixed-rate mortgages for 30 years jumped from an average of 3% to about 6% last year alone. These rate hikes increased mortgage costs by a median of 49%. This allowed potential homebuyers to pay less for the same budget, Redfin found.

At the end of 2021, homebuyers with a monthly mortgage budget of $ 2,500 may be able to buy up to $ 517,500 worth of homes. However, for the four weeks leading up to June 15, 2022, the same homebuyer could only buy up to $ 399,750 worth of homes. This is a $ 120,000 drop in purchasing power.The median monthly mortgage payments in the United States $ 2,391 as of JuneAccording to Redfin data.

Even homeowners who can spend more money see the value of homes they can buy diminish. Studies show that buyers with a monthly mortgage budget of $ 3,000 or $ 3,500 lose purchasing power of $ 141,250 and $ 165,000, respectively.

Redfin’s data makes some assumptions. Mortgages include a 20% down payment, a fixed asset tax rate of 1.25%, a homeowners insurance rate of 0.5%, and do not include membership fees for the Homeowners Association.

“Many house hunters probably need to consider a small house far from the ideal neighborhood, or if they are completely priced from the market, they need to stick to renting,” he said. Darryl Fairweather, Redfin’s Chief Economist, wrote in a blog post that accompanies the data.

For sellers, “The low budget of homebuyers means they can no longer expect to get the best dollars for their home.”

The survey also looked at the proportion of affordable homes with a monthly budget of $ 2,500 per metropolitan area. With interest rates soaring from 3% to 6%, the national share of affordable homes has fallen by 16%.

However, the biggest drop in affordability was in Phoenix, Raleigh, Las Vegas, Salt Lake City, and Austin, which became a popular home-buying market during the pandemic and are well-known for their low cost of living.

In expensive real estate markets like the Bay Area and New York, the decline in affordability was the smallest, as these markets were already affordable, limited to the $ 2,500 mortgage budget per month. Is.

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