Mortgage rates have jumped again: find out how many homeowners have to fork out monthly

Most of us are already well aware that higher mortgage rates, combined with already high house prices, have led to a severe housing affordability crisis in recent months. But how a lot of do they affect the actual monthly expenses required to own a home in today’s market?

When mortgage interest rates change by a fraction of a percentage point, it may seem insignificant. But even the smallest moves can result in big savings or make home ownership out of reach for many potential buyers.

For a house at the current average listing price, the buyer will pay about $800 more. every month than just a year ago, largely due to higher mortgage rates.

Last week, mortgage rates rose again to the mid-range of 6% for 30-year fixed-rate loans, according to Mortgage News Daily, up from just under 6% last month. While those rates are down more than 7% in November 2022, last week’s slight increase weighs on the bottom line for many buyers already frustrated by stubbornly high home prices.

“When prices are high, people borrow more money, so higher mortgage rates are especially painful,” he says. Daniel Hale, Chief Economist at Realtor.com®. “Buyers must either spend the majority of their paycheck on housing costs or cut back on their list of must-haves. For some buyers, it will be impossible to solve this equation, so they will end up staying in place, and many potential buyers will continue to rent for longer.”

Even the recent drop by about a percentage point has still left mortgage rates a few percentage points above the lowest levels offered in the previous few years. Mortgage rates were last around 6.5% in 2008; they last exceeded 7% in 2002.

So what do the current numbers show? Well, the current median price for a single-family home in January was $405,950, up over $100,000 from three years earlier, before the start of the COVID-19 pandemic. And data compiled by the National Association of Realtors® shows that the average down payment in 2022 was 14%. Combined with the latest interest rate, the monthly mortgage payment for a house at an average price would be just over $2,200 per month. The same house at January 2020 prices and mortgage rates would be worth about $1,150 per month.

And that’s before taxes and insurance. Adding this raises the new monthly cost of a home with an average price to just under $2,800, where it would have cost about $2,000 a year ago.

At current rates, the median home price would need to drop 27% to have the same monthly payment as it did a year ago. This would mean the median home price would be $295,000 compared to $405,950 for the current single-family home. And to get the same monthly payment as two years ago, prices would have to be 37% lower than they are now, or $254,000. And with the monthly cost three years ago, just before the start of the COVID-19 pandemic, prices should be about 42% lower, at about $234,000.

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Watch: 6 Important Tips for Lowering Your Mortgage Rate

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Test in practice: housing prices in most of the country are still rising from year to year.

So what should a potential homebuyer who is at the breaking point do? First, buyers should shop around with different lenders to find the lowest rates to save some money.

“You can get something a little different,” says Hale, adding that borrowers should also look at different types of loans, which can be cheaper. [a Veterans Affairs] a loan or if you are buying a home for the first time [assistance] credit, you’ll get another quote.”

Rates rose on the back of the latest jobs report, which surprised economists by adding 517,000 new jobs. Investors expect the low unemployment rate to prompt the US Federal Reserve to raise the base rate even higher to slow the economy and reduce inflation. Mortgage rates followed the same trajectory.

While Realtor.com economists expect year-end rates to top 7%, others are predicting stable or slightly lower mortgage rates until the end of 2023 as recession prospects for the coming months remain unclear.

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