Soaring mortgage rates are taking a major chunk out of homebuyers’ budgets, according to a new report from Redfin.
A homebuyer on a $3,000 monthly budget, for example, could afford a $429,000 home with a 7.4% mortgage rate, using rate data from August 23. That buyer lost $71,000 in purchasing power compared to one year ago when a $500,000 home would have been accessible to them with an average rate of about 5.5%.
The daily average mortgage rate of 7.36% on August 23 is close to its highest level in over 20 years, with the average monthly mortgage payment is around $2,700 today, $400 higher than at the same point in August of 2022.
“The combination of high monthly mortgage payments and historically low housing inventory has pushed many would-be homebuyers out of the market,” the report said. Home-purchase applications dropped to their lowest level in nearly 30 years during the week ending August 18, and Redfin’s Homebuyer Demand Index—a measure of requests for home tours and other buying services from Redfin agents—was down 7% year over year.
Demand levels vary by region. Agents say cash-strapped buyers are negotiating hard to get deals in this environment. But in Tennessee, as with other high-demand areas, there’s a limit to how low buyers can go.
“Some buyers are hoping they can get a home for under asking price to make up for high interest rates because they’re hearing the housing market is slow, but what’s happening nationally isn’t necessarily true here,” said Kristin Sanchez, a Redfin agent based in Smyrna, Tenn.
Tennessee, a hot spot for people relocating from other states, boasts a healthy job market that’s fueling strong demand, Sanchez said. As a result, homes are typically selling at or above asking price with two to three offers, she added.
Mortgage-purchase applications during the week ending August 18 also saw a decline of 5% from the prior week, on a seasonally adjusted basis. Home-purchase applications dropped to their lowest level since 1995, while purchase applications were down 30% from the same point last year.
