Mortgage rates are a heartbeat away from the 7% threshold. According to Freddie Mac, the 30-year fixed mortgage rate rose to 6.92% from 6.66% the previous week. While inflation remains elevated, mortgage rates will continue to move up, making homeownership even further out of reach for many.
At the beginning of the year, when mortgage rates were about 4 percentage points lower, and inventory was at record lows, people were not able to purchase a home due to high demand and competition. Prospective buyers had to offer well above the asking price and waive contingencies in order to make their offer more appealing to sellers. Now, with 7% mortgage rates, people cannot buy a home due to affordability. People need to earn $40,000 more in order to afford to buy the median-priced home compared to a year earlier. However, the salary of the typical American has only increased by $2,300 in the last 12 months. For prospective first-time home buyers, it's a double whammy. It's not just mortgage rates. Rents continue to escalate while nearly half of the renters are already cost-burdened.
Nevertheless, as housing demand has cooled down, there are more options for prospective buyers out in the market. For buyers earning $100,000, there are about 80,000 more homes available for sale that these buyers can afford to buy now compared to the beginning of the year.