Buyers on $3K Budget Lost $71K in Purchasing Power
If a buyer on a $3K monthly budget can get a 7.4% mortgage, the range of homes they can afford is less expensive than the ones they looked at last year.
SEATTLE – Historically high mortgage rates are cutting into buyers’ budgets: A buyer on a $3,000 monthly budget, for example, can afford a $429,000 home with a 7.4% mortgage rate – roughly the daily average on Aug. 23.
Year-to-year, that buyer has lost $71,000 in purchasing power (since August 2022), when they could have bought a $500,000 home with an average rate of about 5.5%, according to a report from Redfin.
The daily average 30-year mortgage rate was 7.36% on Aug. 23, down slightly from a peak the day before but still close to its highest level in more than 20 years.
To look at affordability another way, the monthly mortgage payment on the typical U.S. home (about $380,000) is roughly $2,700 with a 7.36% mortgage rate. The monthly payment would have been $400 lower – around $2,300 – with last year’s 5.5% rate.
The combination of high monthly mortgage payments and historically low housing inventory has pushed many would-be homebuyers out of the market. Home-purchase applications dropped to their lowest level in nearly 30 years during the week ending Aug.18.
“The buyers out there right now are the ones who need to move,” says Phoenix Redfin agent Kim Lotz. “I’m working with one couple from out of state who are coming to Phoenix because of a job transfer; they don’t have the luxury of waiting for mortgage rates to come down.”
“Some buyers are hoping they can get a home for under asking price to make up for high interest rates because they’re hearing the housing market is slow,” adds Nashville Redfin agent Kristin Sanchez. “ But what’s happening nationally isn’t necessarily true here. Tennessee is a hot spot for people relocating from other states. There are plenty of jobs, and the area is starving for inventory. So despite high rates, there are more house hunters than houses for sale. Homes that are priced competitively and in good condition are typically selling at or just over asking price with two or three offers.”
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