A homebuyer on a $2,500 monthly budget has lost nearly $120,000 in spending power since the end of last year as mortgage rates have nearly doubled.<\/p>\n
That buyer can afford a $399,750 home at today\u2019s mortgage rate of roughly 6%<\/a>. That\u2019s a staggering $117,750 less than the $517,500 home the same budget could have bought at the end of last year when rates were at a near-record-low of 3%. To put it another way, the monthly payment on a $399,750 home would rise more than $500 with the higher mortgage rate, from $1,931 to $2,500.<\/p>\n Nationwide, 45.6% of homes for sale are affordable on a $2,500 monthly budget with a 6% interest rate. By comparison, 61.6% would be affordable if rates were still at 3%. That\u2019s according to a Redfin analysis of homes for sale from May 15 to June 15, and assumes a 20% down payment, a 30-year mortgage, 1.25% property tax rate, 0.5% homeowners insurance rate and no HOA dues.<\/p>\n \u201cHigher mortgage rates are necessary to cool down<\/a> the red-hot housing market. They\u2019re already slowing competition<\/a>, but they\u2019re also putting buyers in a tough spot,\u201d said Redfin Chief Economist Daryl Fairweather<\/a>. \u201cThe increase in monthly payments means many house hunters now need to consider smaller homes\u2014perhaps farther from their ideal neighborhood\u2014or stick to renting if they’re priced out of the market altogether. And for sellers, smaller homebuyer budgets mean they can no longer expect to get top dollar for their home.\u201d<\/p>\n Rising mortgage rates also impact housing supply, as some would-be sellers may <\/span>stay put<\/span><\/a> because selling their home and buying another one would mean trading a low mortgage rate for a higher one. <\/span><\/p>\n Mortgage rates have been on the rise since January as the Federal Reserve seeks to fight inflation<\/a>. Last week alone, the average 30-year fixed mortgage rate climbed to 5.78% from 5.23%\u2014the largest one-week jump since 1987 as the Fed introduced the steepest interest-rate hik<\/a>e in nearly three decades.<\/p>\n Although 30-year mortgage rates have shot up, buyers do have other options. Homebuyers can consider<\/a> adjustable-rate mortgages, which typically have lower interest rates at the beginning of the term but come with risks. And buyers who do choose a 6% interest rate have the option to refinance in the future if rates fall.<\/p>\n