The battle waged by the Federal Reserve to curb inflation is heightening mortgage costs, making homes less affordable for first-time buyers.
The average rate on the popular 30-year fixed mortgage is now close to 6 percent, which is about double what it was at the beginning of the year. Consequently, the monthly mortgage payment for a typical home in the United States for new buyers has increased by roughly $800, or 53 percent, this year.
Since the beginning of this year, mortgage rates have risen considerably, pricing out millions of potential home purchasers, according to Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors (NAR).
“We see that the buyer pool is shrinking,” she told The Epoch Times.
Even though there are now 13 percent more homes available than in January, not all prospective buyers can afford to purchase these additional houses, according to Evangelou.
Despite the drop in home sales activity, prices remain strong. In the coming months, prices are expected to rise, but at a slower pace. By the end of the year, the median selling price of homes will have increased by 5 percent over the previous year, according to Evangelou.
“The reason that we don’t expect to have any price drop is due to the housing shortage. We still have a severe housing shortage,” she said.
The Federal Reserve raised its benchmark interest rates by 75 basis points at its June meeting—the largest rate hike since November 1994—as part of its effort to tame soaring inflation. This brought the Fed funds rate range to between 1.5 percent and 1.75 percent.
Mortgage rates have already increased in expectation of Fed rate hikes, according to Evangelou, therefore she doesn’t expect significant increases in the coming months, as we witnessed in March and April.