If you're a cash buyer, as many home buyers in Southwest Florida are, mortgage rates really don't "interest" you much. But if you need a mortgage, as many buyers still will, higher mortgage rates are going to have a tremendous impact on how much you can afford to pay for a house.
The exact impact these higher rates will have on the housing market is already showing up in the larger numbers of buyers who can no longer qualify for a big enough mortgage to buy the home of their dreams or are simply giving up looking for a house as their purchasing power continues to decline. Sellers are therefore forced to slash their listing prices or pull their homes off the market when they realize they can't get the price they want. But even with reductions in listing prices, home sales are falling, and homes are sitting on the market longer.
Of course, as everyone realizes, rising mortgage rates mean higher monthly payments - but exactly how much? We wanted to give prospective home buyers a firm idea what the exact impact the mortgage rate increase is having on the purchasing power of home buyers and the resulting reduction in the pool of home buyers for each percentage point increase in the mortgage rate. And also, how much more do households need to earn in order to make monthly payments on a new mortgage on their home?
Mortgage rates have more than doubled since the start of the year, rising from the low 3% range to nearly 7% for 30-year fixed-rate loans, according to Freddie Mac. For the current average price of a home in the U.S. - $427,250 - this means an increase from $1801 at 3% to $2843 at 7% or per month - over $1000 per month!
That means buyers now require an annual household income of about $124,000 or over $10,000 per month to buy the median-priced home, according to our analysis. However, just one year ago, when rates were about 3%, buyers would have needed to earn only about $89,000. That difference equates to around 20 million U.S. households that are priced out of the median-priced home in the span of a single year.
If rates go up to 8%, which some real estate experts are predicting, buyers would need an annual household income of $137,356 for a median-priced U.S. home to pay the increase to $3135, assuming, of course, that the median home price stays constant at $427,250 (and that's far from assured). At 10%, they would need to bring home nearly $160,000 a year.
Of course, many buyers in SWFL, especially the ones buying in the coastal areas, make much more than that and pay cash, anyway. But this trend is something to keep track of if you're looking to list your house, again especially if you're selling a home that's not very close to the coast. For those of you that aren't, now might be the time to list.
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