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One of the primary issues with the housing market over the last four years is the sharp rise in the interest rates on mortgages. After it appeared these rates were resetting downward, something changed. This is a new worry that America’s inflationary period has not ended. The recent strong jobs report steered inflation anxiety higher. Suddenly, mortgage ratings moved to their highest level since July. The number jumped to 6.93% for a 30 year fixed. The question emerges again. How many Americans can actually afford a mortgage? The answer is fewer and fewer. You may be among them.
The average mortgage rate fell to 2.96% in 2021. This, in turn, helped stimulate the real estate market. A 3% mortgage on a $450,000 house drove a monthly payment of $1,925. When rates moved to 7%, the monthly payment rose to $2,923, according to the National Association of Home Builders. One byproduct of this was that people with low mortgage rates decided not to sell their houses. Their low payments were simply too attractive.
Americans turned to renting, as potential buyers waited for mortgages to drop. A third of people rented homes and apartments in 2024. About half of potential first time homeowners believe they cannot afford to purchase a home. Among the solutions to this is people who have saved tens of thousands for down payments. However, to drop monthly payments, a down payment would need to rise to 30% to 40%.
Under normal circumstances, the income needed to buy a home is not only based on monthly payments. People need to come up with down payments, which are usually 20%. They also need to cover property taxes and insurance. Usually, renters do not have this problem.
Owning a home in the US requires an income of well over $110,000 at current mortgage rates. Most of the balance of potential buyers will need to wait until their incomes rise, or mortgages come down. Right now, for these people, rates are moving in the wrong direction.
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