The Math for Buying a Home No Longer Works. These Charts Show You Why.
What does it take to buy a home in the U.S.? A lot more than it did before the Federal Reserve raised interest rates
It is now less affordable than any time in recent history to buy a home, and the math isn’t changing any time soon. Home prices aren’t expected to go back to prepandemic levels. The Federal Reserve, which started raising rates aggressively early last year to curb inflation, hasn’t shown much interest in cutting them. Mortgage rates slipped to about 7% last week, the lowest in several months, but they are still more than double what they were two years ago.
Typically, high mortgage rates slow down home sales, and home prices should soften as a result. Not this time. Home sales are certainly falling, but prices are still rising—there just aren’t enough homes to go around. The national median existing-home price rose to about $392,000 in October, the highest ever for that month in data that goes back to 1999.
Average rate on a 30-year fixed mortgage, monthly
Median sales price on existing U.S. single-family homes
Sources: Freddie Mac (mortgage rates); National Association of Realtors (home prices)
In mortgages, higher rates add up fast. An increase of just a few percentage points can mean hundreds of thousands of dollars more in interest over the life of a standard 30-year loan
.
Total cost of a mortgage for a $400,000 home at different interest ratesSource: Bankrate.comNote: Based on a standard 30-year fixed mortgage, with a 20% down payment.
Loan amountTotal interest3%5%8%$0$500,000$1,000,000
That means buyers get a lot less home for their dollar. Before the Fed started raising rates, a person with a monthly housing budget of $2,000 could have bought a home valued at more than $400,000. Today, that same buyer would need to find a home valued at $295,000 or less
First-time and young buyers are still stuck on the sidelines. About one-third of buyers this year were first-time home buyers, below the historical average of 38%, according to the National Association of Realtors. The median first-time buyer was 35 years old. That was the second-highest on record, behind only 2022’s peak of 36 years old.
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