A recent surge in US mortgage rates has pushed affordability to the lowest level in nearly four decades. For house hunters, waiting for any relief is a risky gamble.
The average interest rate in the US rose to 7.09%, its highest level in more than 20 years, according to data released Thursday by mortgage giant Freddie Mac. That’s the highest it’s been since April 2002, and comes after the Federal Reserve has raised interest rates aggressively in a bid to fight inflation.
Mortgage rates have more than doubled in the last two years, sharply raising the cost of a typical home loan. The monthly payment on a $350,000 house today, assuming a 20% down payment, would be $1,880, compared to $1,159 in 2021, when interest rates were below 3%.
Combine the current borrowing costs with an inventory crunch that’s driven up prices, and you get the worst house affordability conditions in four decades, Bloomberg reports.
Roughly 75% of US homeowners have mortgage rates of less than 4%, according to JPMorgan, so you can imagine why no one is eager to move and pay upward of 7% on the price of a new home.
Thus, resale inventory is about half of what it should be. Sales of existing homes in June were down 18.9% from a year ago.
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