Mortgage rates just hit 5%. Buying a home has become a lot more expensive
Mortgage rates on 30-year, fixed-rate loans rose above 5% this week. That's pushing the cost of buying a home higher and making homeownership unaffordable for more people.
Here's a not-so-fun fact: The monthly mortgage payment it takes to buy the typical home in the U.S. is now up by a staggering 55% compared with the start of last year. That's because of the dramatic rise in mortgage rates in recent weeks on top of price gains in the hot housing market.
Last summer, mortgage rates were under 3%. This week they've risen to over 5%. While that may not sound like much, it makes a huge difference when you're buying something as costly as a house.
For a average $600,000 home, it adds almost $700 a month in monthly payments". This can be perceived as a ridiculous amount, just from the interest rates." And that doesn't even factor in the big gain in prices over the past year as buyers are still trying to buy a home.
Buyers in this superheated housing market, keep getting outbid. Now with the higher mortgage rates, they're looking at smaller, less expensive homes
Some first-time buyers are giving up completely.
"It's pretty much pushed them out of the market,"
Here's how the numbers look for the typical home in the U.S.: The median price for a home has risen from $309,200 in December 2020 to $357,300.
Over that same period, interest rates rose from 2.67% to 5.08% this week. With a 10% down payment, that has pushed the monthly payment up from $1,124 to $1,742 — a whopping 55% increase. That's upwards of $600 a month on that $357,000 home. That's the impact of higher prices together with rising rates.
If you look at interest rates alone - the 2% rise in interest rates we've seen so far adds $115 to the monthly payment for every $100,000 you borrow on a 3o year loan.
A slowdown in demand could help give homebuilders time to catch up. A record low supply of homes is a big reason prices have risen so much during the COVID-19 pandemic.