Monthly Mortgage Payments for Typical Home Rise $800 Since January

While the rapid climb in mortgage rates has slowed, millions of potential buyers remain priced out

A 'for sale' sign hangs in front of a home on June 21, 2022, in Miami. (Joe Raedle/Getty Images)

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.

The 30-year fixed-rate mortgage averaged 5.70 percent for the week ending on June 30, according to the new Freddie Mac’s Primary Mortgage Market Survey, down from 5.81 percent last week and up from 3.11 percent since the end of last year.

“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” Sam Khater, Freddie Mac’s chief economist, wrote in a report. “This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”

Because of rising home prices and mortgage costs over the past several months, the average monthly payment for a 30-year mortgage reached $2,250, according to Redfin’s mortgage calculator. This estimate is based on a median house price of $430,695 and a 10 percent down payment.

About six months ago, the same buyer would have been paying only $1,470 per month, based on a 3.11 percent mortgage rate and a median house value of about $382,106.

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.

She predicted in a recent report that buyers with an income of $75,000 now may be able to afford about 25,000 fewer listings than they could in January.

Total existing-home sales nationwide decreased by 3.4 percent from April to May, reaching a seasonally adjusted annual rate of 5.41 million, according to NAR’s most recent home sales report. Compared to a year earlier, existing-home sales have dropped by 8.6 percent.

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.

The median expectation among policymakers is for rates to end the year at 3.4 percent. If the Fed continues with its projected rate hikes, mortgage rates might approach 6.5 percent by the end of the year, according to NAR’s estimate, making homeownership much more difficult for many Americans.

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.