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Homebuyers’ purchasing power is rapidly slipping away as mortgage rates continue creeping up, according to a new analysis. In fact, someone with a $3,000 monthly budget can now only afford a $429,000 home compared to a $500,000 one a year ago.

Historically high mortgage rates, rising prices and low inventory are making it especially difficult to purchase a home right now. The estimate, which comes from real estate brokerage Redfin, reflects a $71,000 loss in buying power since last August: yet another blow to long-suffering U.S. homebuyers, who have been dealing with unfavorable market circumstances since 2020.

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What the data says

  • Redfin estimates that a $3,000 monthly budget will only buy about $429,000 worth of house with a 7.4% mortgage rate. (That was the daily average mortgage rate as of Thursday, when the Redfin report was released. Rates have since ticked down a bit to 7.23%.)
  • A year ago, that $3,000 budget would have afforded the same buyer a $500,000 home with a 5.5% average mortgage rate.
  • Even compared to a month ago, buyers’ purchasing power is much weaker. In July, Redfin calculated that someone with a $3,000 budget could afford a $450,000 home.
  • If a buyer were to purchase an average-priced home right now at $380,000, they'd have to pay $2,700 a month on a mortgage. That's $400 more than it would be if they had purchased an average-priced home last year.

The outlook for homebuyers

It has been a rough few years for Americans trying to buy homes. Pandemic-induced migration and the ensuing homebuying frenzy pushed prices way up in 2020, resulting in bidding wars between buyers who could still afford to compete for property. Just as the market started showing signs of cooling in summer 2022, the Federal Reserve’s inflation-busting rate hikes pushed even more buyers out of the market as homeowners locked into their current mortgages.

High mortgage rates have edged home sellers out of the market, too, creating an even greater imbalance between supply and demand. Now, buyers are contending with a nightmare trio of historically high monthly mortgage payments, historically high prices and historically low inventory as sellers retreat.

It looks like it will be a while until conditions improve, according to another analysis. Per recent reports from real estate marketplace Zillow, the typical home is now valued at almost $350,000, and values are expected to grow 6.5% over the next year.

While that’s good news for current homeowners’ equity, it’s another hit to affordability that will likely continue to keep prospective buyers on the sidelines.

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