U.S. home buyers face a tough real-estate market, with the 30-year mortgage near 8%.
Exactly how tough is it to buy a house these days? MarketWatch worked with Redfin to find out how much a home buyer needs to earn to buy a median-priced house in September 2023 with the 30-year fixed-rate mortgage at 8%.
It’s not a pretty picture. Mortgage rates have more than doubled since the pandemic, when the U.S. Federal Reserve kept interest rates low to promote economic activity amid mass closures to prevent the spread of the coronavirus.
The Fed’s aggressive and quick hiking of rates since then has made it much more expensive to buy a house, particularly with a mortgage. Higher rates have also spooked homeowners who might have been considering a move, which in turn has resulted in very low inventory and pushed up home prices. Even all-cash buyers cannot catch a break in this environment, because there are few listings.
A median-priced home, meaning a house right in the middle of the price ladder, was roughly $412,000 in September 2023, according to real-estate brokerage Redfin
The 30-year rate varied between 7.63% according to Freddie Mac and 8.03% according to Mortgage News Daily.
“It’s important to note that reported rate numbers are averages at best and don’t apply across the board,” Andy Walden, vice president of enterprise research at Intercontinental Exchange, said.
“Actual offerings will vary by lender and are dependent on the loan type and creditworthiness of the individual borrower,” he added.
With that in mind, here’s a look at exactly how various mortgage rates affect your monthly housing payment.
Buying a median-priced home at 8% rates
Mortgage News Daily on October 19 noted that some lenders were quoting a rate of 8.03%.
That means that if a home buyer is paying for a median-priced $412,000 home with a 30-year mortgage at 8% after putting 20% down, they would have to pay roughly $3,019 per month, which includes not just their principal and interest, but taxes and insurance as well, according to Redfin.
To afford that on a monthly basis, a prospective buyer would need to make $120,773. Redfin considers a monthly payment as “affordable” if the buyer is spending no more than 30% of their income on housing.
Buying a median-priced home at 7% rates
In October, Fannie Mae said that it expected the 30-year mortgage to fall to 7.1% in the first quarter of 2024, and go lower after that, ending the year at 6.7%.
If a home buyer is paying for the $412,000 home with a 30-year mortgage at 7% after putting 20% down, they would have to pay roughly $2,794 per month, which includes not just their principal and interest, but taxes and insurance as well, Redfin said.
To afford that on a monthly basis, a prospective buyer would need to make at least $111,747 a year.
Buying a median-priced home at 6% rates
The Mortgage Bankers Association, an industry group, expects the 30-year to fall to 6.1% by the end of 2024.
If a home buyer is paying for the $412,000 home with a 30-year mortgage at 6% after putting 20% down, they would have to pay roughly $2,577 per month, which includes not just their principal, interest, taxes, and insurance, Redfin said.
To afford that on a monthly basis, a prospective buyer would need to make at least $103,078 a year.
Real-estate is much more expensive today than before the pandemic
Rising rates have made buying a home a much more expensive process than before the coronavirus pandemic.
A home buyer buying a median-priced home today has to earn 50% more than they would have if they wanted to buy a median-priced home at the start of the pandemic, Redfin said in a blog post.
“Buyers — particularly first-timers — who are committed to getting into a home now should think outside the box,” Chen Zhao, economics research lead at Redfin, said in the post.
“Consider a condo or townhouse, which are less expensive than a single-family home, and/or consider moving to a more affordable part of the country, or a more affordable suburb,” she added.