“All of a sudden, your buying power is less … even though your payments are the same.” Rising mortgage rates, combined with high home prices, are discouraging would-be buyers. Mortgage applications and sales of previously occupied homes have declined.
Kyle Tomcak sits in front of his house in Aurora, Colo., on Monday, July 18, 2022. Tomcak was in the market for a home priced around $450,000 for his in-laws and he and his wife bid on every house they toured, regardless of whether they fell in love with the home. He said his search became increasingly dispiriting as he not only lost out to investors fronting cash offers $100,000 over asking price but as mortgage rates started to balloon. He has since pulled out of the housing search.
, according to mortgage buyer Freddie Mac; a year ago it was close to 2.78%. The increase in rates is leaving buyers with some unwelcome options: pay hundreds of dollars more for a mortgage, buy a smaller home or choose to live in a less desirable neighborhood, or drop out of the market, at least until rates come down.
In Seattle, a hotter housing market, a $2,000-a-month payment this time last year would have gotten a buyer a modest 1,300-square-foot home. That sort of payment would get them only a 950-square-foot apartment now. For more than a decade, potential homebuyers were willing to put up with rising home prices because the cost of a mortgage was at historical lows. The average mortgage rate on a 30-year fixed-rate mortgage mostly stayed below 4.5% for most of the last decade, according to data from the Federal Reserve Bank of St. Louis.The financial data firm Black Knight estimates that the rise in mortgage rates has increased a typical borrower’s monthly payment by 44% since the beginning of the year.
Instead, the Martins have yet to receive a single offer and have lowered their asking price to $899,000. Raymond Martin, 51, noted that shortly before listing his Austin home, a neighbor sold their similar-sized home for $100,000 over the $1 million asking price.
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