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Rising mortgage rates and prices that remain stubbornly high have led to a new milestone: typical monthly payments hit their highest point ever this week.
The typical monthly payment hit $2,563 this week. That’s up 29 percent from a year ago, when monthly payments were $1,988, according to a new report from online real estate portal Redfin.
Heading into what is typically a busy spring homebuying period, buyers are faced with low inventory and high prices amid an ongoing standoff between buyers and sellers.
“All eyes are on inflation as it continues to have a huge impact on mortgage rates and the housing market,” Redfin’s deputy chief economist, Taylor Marr, said in the report. “The Fed said this week that it may hike interest rates more than anticipated to combat persistent inflation. That news kept mortgage rates propped up, but next week’s official February inflation reading could send them meaningfully up or down.”
Home prices fell 1 percent year over year, Redfin reported. Yet rising interest rates are enough to offset the lower prices. The average 30-year fixed mortgage rate climbed to 6.73 percent this week, with rates climbing north of 7 percent on Wednesday.
In the past month alone, an increase in rates robbed purchase power by 6 percent. Buyers on a $2,500 monthly budget could afford a $400,000 home a month ago. Now they can afford $376,000.
A year ago, rates were at 3.85 percent, and buyers could afford homes worth $480,000, Redfin reported.
The conundrum is contributing to the standoff between buyers who can’t afford to pay such high prices and sellers who don’t want to trade in their low-rate mortgages for record-high payments.
Demand remains up from its low point in October, Redfin reported.
Still, pending home sales are down 16.1 percent from a year ago. New listings are down 21.7 percent, the biggest drop in two months. The Redfin Homebuyer Demand Index, which measures home tours and services among the company’s agents, is down 27 percent from a year ago.
Redfin’s data goes back to 2012. The company said the 1.2 percent year-over-year drop in home prices was the biggest since February 2012, shortly after it began tracking such data.
The report also follows a release showing the U.S. added 311,000 new jobs last month, higher than expected.
Yet the jobs numbers were viewed as positive by Lawrence Yun, chief economist of the National Association of Realtors. Yun said he expected mortgage rates could begin to fall later this year as inflation continues to fall.
“The job market is improving in the right way. More jobs are being created, but even more importantly, a greater number of Americans are seeking jobs,” Yun said. “It’s possible that by the year’s end, wage growth will be 4 percent while consumer price inflation runs at 3 percent, thereby boosting living standards. More importantly for real estate, mortgage rates can now steadily trend downward.”
Buyers have shown to be sensitive around even slight changes in mortgage rates. Redfin’s Marr said if rates dropped it could begin to thaw the icy housing market.
“Homebuyers and sellers are ultra-sensitive to mortgage-rate fluctuations, so rates starting to decline would likely bring some buyers and sellers back – and rates rising would push more away,” Marr said.
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