Homebuyers Lose $33,250 in Purchasing Power as Mortgage Rates Exceed 7 Percent: Report
The purchasing power of prospective homebuyers has eroded because of the recent increase in mortgage rates, with strong economic data also contributing to the problem, according to real estate brokerage firm Redfin.
"That buyer still has $17,000 more purchasing power than they would have had in April, when mortgage rates peaked at 7.5 percent. But the recent rise in mortgage rates is disappointing for buyers who missed out on the short window of rates that were much closer to 6 percent than 7 percent."
To afford a median-priced home, buyers will now have to shell out $200 more in monthly payments.
Redfin attributed the jump in mortgage rates mostly to investors becoming worried that the government could spend more money after the election.
Another factor is the recent inflation and jobs data, which suggest a robust economy. This raises the possibility that the U.S. Federal Reserve will only make a small interest rate cut in their next meeting.
The jump in mortgage rates was driven by bond market volatility ahead of the upcoming U.S. presidential election and the Fed meeting, he said.
Redfin Economic Research Lead Chen Zhao advised prospective buyers to "focus on finding a house they love and try to negotiate on things they have some control over, like the sale price and home repairs."
Among the seven swing states that are key for candidates to win the election, five have median home sales prices lower than the national median. Nevada and Arizona have higher prices.
Nicole Stewart, a Redfin Premier agent in Boise, Idaho, said that buyers and sellers have been "quieter than usual" this past week. The impending election has made people wary about making a big decision like a home purchase, she said.
An analysis of median home prices in seven swing states found that listing prices averaged $216 per square foot over 12 months through October. This was closer to red states' $192, and over $100 lower than $322 in blue states.
"If rising home prices since the last election matter for voters next week, it implies that swing state voters may have federal housing policy on their minds much less than voters in blue states but perhaps a little more than voters in red states," said Realtor.com senior economist Ralph McLaughlin.
Former President Donald Trump plans to focus on bringing down mortgage rates by slashing inflation. In addition, the Republicans aim to "open limited portions of federal lands to allow for new home construction, promote homeownership through tax incentives and support for first-time buyers, and cut unnecessary regulations that raise housing costs."
