Mortgage rates hit their highest level in more than 20 years in the first week of October, pushing the average homebuyer's monthly housing payments to all-time highs, according to a new report from Redfin [1].
A homebuyer on a $3,000 monthly budget, for instance, can afford a $419,000 home with a 7.7% mortgage rate, roughly the daily average on October 4. That homebuyer has lost $38,000 in purchasing power since last October, when they could have bought a $457,000 home with a 6.6% rate.
By that time, homebuyers had already lost a significant amount of purchasing power since the start of the year, as mortgage rates doubled throughout 2022. A homebuyer on a $3,000 budget could have purchased a $595,000 home with the 3.5% rates common at the start of 2022.
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In addition to sky-high mortgage rates, rising home prices are cutting into buyers’ budgets. The typical U.S. home sold for $371,000 during the four weeks ending October 1, up 3% from a year earlier.
That’s because there aren’t enough homes for sale. High housing costs are pushing demand down, with mortgage-purchase applications dropping to their lowest level in nearly 30 years. But inventory is falling significantly, too, as homeowners hang onto relatively low rates. The total number of homes for sale is down 14%.
Leading Indicators of Homebuying Demand and Activity:
- The daily average 30-year fixed mortgage rate was 7.7% as of Oct. 4, representing the highest level in over two decades and up from 6.65%, according to Mortgage News Daily [3].
- The weekly average 30-year fixed mortgage rate was 7.31% as of the week ending Sept. 28, marking the highest level in nearly 23 years and up from 6.7%, according to Freddie Mac [4].
- Mortgage-purchase applications were down 6% from a week earlier as of the week ending Sept. 29, down 22% to the lowest level in nearly 30 years, according to the Mortgage Bankers Association [5] (MBA).
- The Redfin [6] Homebuyer Demand Index was down 3% from a month earlier as of the 4 weeks ending Oct. 1, close to its lowest level since January and down 1% overall.
- Google [7] searches for “home for sale” were down 9% from a month earlier as of Sept. 30, down an estimated 6%, according to Google Trends [8].
Why mortgage rates are rising again: “There are several reasons why mortgage rates are still climbing,” said Redfin Economic Research Lead Chen Zhao. “The Fed hinted that another interest-rate hike before the end of the year is likely, the latest job market data came in stronger than expected, and the yield curve is steepening as investors prepare for higher rates for longer. Turmoil in Congress isn’t helping, either, as the clash among House Republicans stemming from the narrowly missed government shutdown is causing volatility in the stock and bond markets.”
A glimmer of hope for the housing market: More homeowners are listing their homes for sale after months of steady decline. New listings rose 3% in September, and so far, these fall listings haven’t declined as much from the summer as they typically do. That may be partly because listings didn’t have much more room to fall—but nonetheless, it’s a glimmer of hope for homebuyers because it means they have a bit more to choose from and could eventually ease price increases.
To read the full report, including more data, charts, and methodology, click here [1].