Mortgage rates surged to their highest level since 2008, after the Fed’s rate hike. According to Freddie Mac, the 30-year fixed mortgage rate rose to 5.78% from 5.23% the previous week.
These rising mortgage rates hurt affordability and decrease the purchasing power of many buyers. In addition to increasing the amount buyers will pay to borrow for their mortgage, higher interest rates lower their purchasing power since a larger portion of their monthly payment will be put toward interest. This means that buyers can afford fewer houses than they could at the beginning of the year. Meanwhile, if buyers want to pay the same monthly mortgage payment as at the beginning of the year, when rates were about 2.5 percentage points lower, they will need to look for a lower-priced home. Put simply, a higher mortgage rate now means a lower price tag. Specifically, buyers can afford to buy 25% less expensive homes than at the beginning of the year. For instance, the typical buyer could afford to buy a home for $360,000 with a $1,400 monthly payment at the beginning of 2022. However, current buyers can afford to buy homes of $270,000 with a $1,400 monthly payment. Nevertheless, home prices continue to rise significantly, making it even more difficult to find homes at this price level.