Mortgage rates remained below 7% this week despite the jump in the 10-year Treasury yield. According to Freddie Mac, the 30-year fixed mortgage rate rose to 6.94% from 6.92% the previous week. However, rates are near the 7% benchmark that could be considered the new normal for mortgage rates.
However, 7% rates were normal in the mid-to-late 1990s and early 2000s. That was when younger Baby Boomers were in their 30s and 40s. However, the homeownership rate was higher, near 67% during that period compared to the current rate of 65.8%, as today’s potential buyers also have to deal with higher inflation. While inflation outpaces wage growth, the typical family needs to stretch out its budget and spend more than 25% of its income on its mortgage payment. Including other expenses such as mortgage insurance, home insurance, taxes, and expenses for property maintenance, home buying costs exceed 30% of a typical family’s income. Nevertheless, between 1995 and 2002, mortgage payments accounted for 20% of income.
As a result, buyers should consider reducing the price point for their home search if they don’t want to go over their budget. In the meantime, data shows that sellers are willing to reduce prices. Among recently sold properties that were on the market for more than a month, sellers had to drop prices by 12% on average.