Homebuyers Lose $33,250 in Purchasing Power as Mortgage Rates Exceed 7 Percent: Report

A home available for sale is shown in Austin, Texas, on Oct. 16, 2023. Photo by Brandon Bell/Getty Images

The purchasing power of prospective homebuyers has eroded because of the recent increase in mortgage rates, with strong economic data also contributing to the problem, according to real estate brokerage firm Redfin.

Homebuyers have lost $33,250 in purchasing power over the past six weeks, according to an Oct. 29 statement by the firm.

“A homebuyer on a $3,000 monthly budget can afford a $442,500 home with the current 7 percent mortgage rate,” the brokerage stated. “The same homebuyer could have purchased a $475,750 home with a 6.11 percent rate—the average on September 17.

“That buyer still has $17,000 more purchasing power than they would have had in April, when mortgage rates peaked at 7.5 percent. But the recent rise in mortgage rates is disappointing for buyers who missed out on the short window of rates that were much closer to 6 percent than 7 percent.”

To afford a median-priced home, buyers will now have to shell out $200 more in monthly payments.

Redfin attributed the jump in mortgage rates mostly to investors’ becoming worried that the government could spend more money after the election.

Another factor is the recent inflation and jobs data, which suggest a robust economy. This raises the possibility that the Federal Reserve will make only a small interest rate cut in their next meeting.

Joel Kan, vice president of the Mortgage Bankers Association, pointed out that following a brief burst of mortgage application activity in September, “overall applications have declined 27 percent.”

The jump in mortgage rates was driven by bond market volatility ahead of the upcoming presidential election and the Fed meeting, he said.

Chen Zhao, Redfin economic research lead, advised prospective buyers to “focus on finding a house they love and try to negotiate on things they have some control over, like the sale price and home repairs.”

“Sellers should know Redfin agents are reporting that there are buyers out there, but they’re mostly looking for move-in ready homes in good condition,” she said.

Election and Housing Market

The mortgage rates hit 7 percent just days before Americans choose their next president. Housing affordability is a key issue for many voters this time around, according to a recent Redfin survey.

Among the seven swing states that are key for candidates to win the election, five have median home sales prices lower than the national median. Nevada and Arizona have higher prices.

“While it’s not unusual for mortgage rates to rise heading into an election as investors’ expectations change, mortgage rates surging to 7 percent after the Fed’s interest-rate cut is surprising,” Zhao said. “We didn’t expect them to rise this much.”

Nicole Stewart, a Redfin Premier agent in Boise, Idaho, said that buyers and sellers have been “quieter than usual” approaching the election, which she said has made people wary about making a big decision such as a home purchase.

A report from Realtor.com reveals that home prices in swing states look more like those in red states than those in blue ones.

An analysis of median home prices in seven swing states found that listing prices averaged $216 per square foot over 12 months through October. This was closer to red states’ $192 and more than $100 lower than $322 in blue states.

“If rising home prices since the last election matter for voters next week, it implies that swing state voters may have federal housing policy on their minds much less than voters in blue states but perhaps a little more than voters in red states,” Realtor.com senior economist Ralph McLaughlin said.

Both Republican and Democrat candidates have vowed to deal with the housing affordability crisis. Vice President Kamala Harris, the Democratic presidential nominee, has proposed building 3 million affordable homes and rental units.

Former President Donald Trump, the Republican nominee, has said that he plans to focus on bringing down mortgage rates by slashing inflation. In addition, the GOP has stated that Republicans plan to “open limited portions of federal lands to allow for new home construction, promote homeownership through tax incentives and support for first-time buyers, and cut unnecessary regulations that raise housing costs.”