If you’re looking to buy a home, get ready to pay a premium because the mortgage rates have topped 7% which is the highest rate in the past 20 years.
This rapid increase in mortgage rates has stalled the booming housing market. According to a survey of lenders by Freddie Mac, the average 30-year fixed mortgage is 7.08% compared to below 6% only a few weeks ago, and one year prior it was around 3%.
According to Realtor.com, an average buyer with a 20% downpayment would have a monthly payment of approximately $2,300 today. One year ago, that same buyer would have had a monthly payment of $1,300, a shocking 80% increase.
Realtors are seeing many would-be buyers back out of the market or reduce their budget in order to afford the increase in mortgage rates. Because the Federal Reserve believes raising interest rates is the key to fight inflation, potential home buyers are being pushed out of the market.
The year-to-date trend of new and existing home sales is decreasing. New-home sales have decreased by 18% in the past year and existing-home sales have fallen by 24%.
With the Federal Reserve driving down demand for new and existing home sales, home prices are decreasing and more inventory remains on the market. The buyers that remain in the market are looking into adjustable rate mortgages with the hope that inflation subsides and the Federal Reserve will lower interest rates.