Home Prices rise as mortgage rates soar

With mortgage rates above 7 percent and home prices remaining stubbornly high, homebuyers are feeling the pinch more and more. In fact, the typical monthly mortgage payment is now 18% more than it was a year ago.

According to Lawrence Yun, chief economist of the National Association of Realtors (NAR), first-time buyers are under extreme pressure since the growth in housing prices is outpacing increases in income. Additionally, homeowners who secured extremely low mortgage rates two years ago are hesitant to transfer. Because there are so few properties available, buyers—particularly first-time buyers—can’t get a break.

How much does a mortgage cost today?

Because there aren’t enough houses on the market, the housing market is difficult for purchasers.

Executive vice president at Guaranteed Rate in Waltham, Massachusetts, Shant Bonosian, claims that “people aren’t listing, and that as a result is having an impact on the inventory.” It’s still in a frenzy, for sure. The competition is fierce.

In addition, because mortgage rates are substantially higher now than they were a year ago, it is more difficult for the ordinary homebuyer to qualify for a mortgage loan now than it was before.

According to the NAR, the national median price of an existing home as of July 2023 was $406,700. That is an increase of 1.9 percent from last year and 33 percent from three years ago.

According to Bankrate’s nationwide survey of lenders, the average 30-year fixed mortgage rate as of early July 2023 was 6.78 percent, a sharp increase from 5.55 percent a year earlier. Rates recently exceeded 7 percent.

The end result: Assuming a 20% down payment and a 30-year loan, a buyer in July agreed to a monthly mortgage payment of $2,154. That represents an increase of 94 percent from three years ago and a 14% increase from the $1,823 payment made in June 2022.

Regional differences

The cost of homes varies greatly across the nation. According to the NAR, the typical home price in the West in July was $610,500, which equates to a monthly mortgage payment of $3,233 for a 30-year loan with a 20 percent down payment. The average cost of a home in the Midwest was $304,600. A loan for 80% of that sum entails a $1,613 monthly payment.

Tips to afford a mortgage

Everyone is impacted by the housing affordability crisis, but first-time buyers are especially vulnerable. Here are some potential tactics to use in this competitive market if you want to leave renting and buy a home:

1. Find down payment assistance

Every state provides assistance to qualified first-time buyers. These initiatives include grants and down payment help. Additionally, some employers and towns provide their own incentives. Lenders and banks will also occasionally offer assistance. Utilize Bankrate’s guide to first-time buyer programs to learn more about your possibilities.

2. Dial back your goals

It’s possible that your beginning home won’t be a well-kept home or a luxury condo in a desirable area. In the current market, buying a home requires making concessions on location, size, or other aspects of your wish list.

3. Don’t sweat the down payment too much

While we used a 20% down payment as the basis for our estimates, it’s not required. Down payments for Federal Housing Administration (FHA) loans can be as low as 3.5 percent. Borrowers can make a down payment on conventional loans of as little as 3 percent with Fannie Mae and Freddie Mac. There is no down payment required for loans supported by the Department of Veterans Affairs (VA), but only active-duty military personnel may apply. (Warning: A smaller down payment results in a larger loan balance and, consequently, higher monthly payments.)

4. Just wait it out

Although the situation seems dire right now, inflation is considerably decreasing, and mortgage rates may soon turn around. Holding out on purchasing a home might make more sense for some people.

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Greg McBride, chief financial analyst at Bankrate, advises first-time buyers to exercise caution when taking on too much debt. The inventory is still rather scarce, home prices are high, and mortgage rates are high. If your profession and income continue to expand over the next year or two, you might find that your monthly budget for mortgage payments and other homeowner expenses is more manageable.

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