Homebuyers on a $2,500 Monthly Budget Have Lost $118,000 in Spending Power This Year Amid Surge in Mortgage Rates
June 21 2022 - 08:00AM
Business Wire
A buyer on a $2,500 budget can afford a
$400,000 home with a 6% mortgage rate—that’s compared to a $517,000
home with a 3% mortgage rate
(NASDAQ: RDFN) — A homebuyer on a $2,500 monthly budget has lost
nearly $120,000 in spending power since the end of last year as
mortgage rates have nearly doubled, according to a new report from
Redfin (redfin.com), the technology-powered real estate
brokerage.
That buyer can afford a $399,750 home at today’s mortgage rate
of roughly 6%. That’s a staggering $117,750 less than the $517,500
home the same budget could have bought at the end of last year when
rates were at a near-record-low of 3%. To put it another way, the
monthly payment on a $399,750 home would rise more than $500 with
the higher mortgage rate, from $1,931 to $2,500.
Nationwide, 45.6% of homes for sale are affordable on a $2,500
monthly budget with a 6% interest rate. By comparison, 61.6% would
be affordable if rates were still at 3%. That’s according to a
Redfin analysis of homes for sale from May 15 to June 15, and
assumes a 20% down payment, a 30-year mortgage, 1.25% property tax
rate, 0.5% homeowners insurance rate and no HOA dues.
“Higher mortgage rates are necessary to cool down the red-hot
housing market. They’re already slowing competition, but they’re
also putting buyers in a tough spot,” said Redfin Chief Economist
Daryl Fairweather. “The increase in monthly payments means many
house hunters now need to consider smaller homes—perhaps farther
from their ideal neighborhood—or stick to renting if they're priced
out of the market altogether. And for sellers, smaller homebuyer
budgets mean they can no longer expect to get top dollar for their
home.”
Rising mortgage rates also impact housing supply, as some
would-be sellers may stay put because selling their home and buying
another one would mean trading a low mortgage rate for a higher
one.
Mortgage rates have been on the rise since January as the
Federal Reserve seeks to fight inflation. Last week alone, the
average 30-year fixed mortgage rate climbed to 5.78% from 5.23%—the
largest one-week jump since 1987 as the Fed introduced the steepest
interest-rate hike in nearly three decades.
Although 30-year mortgage rates have shot up, buyers do have
other options. Homebuyers can consider adjustable-rate mortgages,
which typically have lower interest rates at the beginning of the
term but come with risks. And buyers who do choose a 6% interest
rate have the option to refinance in the future if rates fall.
Less Than One-Third of Homes For Sale in Phoenix, Raleigh,
Las Vegas, Salt Lake City and Austin Are Affordable With a 6%
Interest Rate and $2,500 Monthly Budget
Homebuyers have fewer options with a 6% interest rate in all 50
of the most populous U.S. metros—but the impact is biggest in
places that were hot homebuying destinations during the pandemic:
Phoenix, Raleigh, Las Vegas, Salt Lake City and Austin.
In Phoenix, 21.5% of homes for sale from May 15 to June 15 were
affordable on a $2,500 monthly budget and a 6% interest rate. By
comparison, about 50% would be affordable if rates were still at
3%. That’s the biggest gap of all the metros in this analysis. In
Raleigh, 33.2% of homes are affordable with the 6% rate, compared
with 61.1% with a 3% rate, and in Las Vegas it’s 30.7%, compared
with 56.7%. Eleven percent of Salt Lake City for-sale homes are
affordable with a 6% rate, compared with 36.4%, and in Austin it’s
13.6%, compared with 38.4%.
The smallest impact is in the Bay Area, because so few homes are
affordable on a $2,500 budget no matter the interest rate.
To view the full report, including a metro-level affordability
breakdown, please visit:
https://www.redfin.com/news/rising-mortgage-rates-purchasing-power-drops-2022/
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate
company. We help people find a place to live with brokerage,
instant home-buying (iBuying), rentals, lending, title insurance,
and renovations services. We sell homes for more money and charge
half the fee. We also run the country's #1 real-estate brokerage
site. Our home-buying customers see homes first with on-demand
tours, and our lending and title services help them close quickly.
Customers selling a home can take an instant cash offer from Redfin
or have our renovations crew fix up their home to sell for top
dollar. Our rentals business empowers millions nationwide to find
apartments and houses for rent. Since launching in 2006, we've
saved customers more than $1 billion in commissions. We serve more
than 100 markets across the U.S. and Canada and employ over 6,000
people.
For more information or to contact a local Redfin real estate
agent, visit www.redfin.com. To learn about housing market trends
and download data, visit the Redfin Data Center. To be added to
Redfin's press release distribution list, email press@redfin.com.
To view Redfin's press center, click here.
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version on businesswire.com: https://www.businesswire.com/news/home/20220621005191/en/
Redfin Journalist Services: Isabelle Novak, 414-861-5861
press@redfin.com
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