According to Chase, a 30-year fixed mortgage carries a rate of 6.99%. The rate is based on a house bought for $350,000 with a 20% down payment. In early 2021, the comparable interest rate was 2.95%. The difference in monthly payments between the two levels is enormous. That is a primary reason home sales have slowed recently and remain slow.
According to the National Association of Home Builders, for a house priced at $450,700, at the low rate from 2021, the monthly payment with 20% down was $1,925. That rose to $2,923 recently.
The AP reports that the housing market is locked up by high interest rates. The news service says that sales of previously occupied homes dropped in September to the weakest annualized pace in 14 years. However, home prices continue to rise: “Despite the slower sales pace, home prices increased annually for the 15th consecutive month. The national median sales price rose 3% from a year earlier, to $404,500.” The low supply has driven the ability of homebuyers to ask for more than they might have in the past.
High mortgage rates have two significant effects. The first is that the people who have owned their homes for many years cannot access the equity they might have if they sold their homes now. However, if these people sell homes they bought with low interest rates and want a new home, their monthly payments will soar.
Second, people who want to buy homes find that monthly payments are so high they need to delay buying homes and may be locked out of the market for years. The number of people who rent homes has risen very sharply.
The landscape of home ownership has changed substantially recently. High mortgage rates may make this the new normal.
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