Homebuyers Lose $33,000 in Purchasing Power in 6 Weeks As Mortgage Rates Hit 7%

Rhea-AI Summary

Redfin (RDFN) reports that homebuyers have experienced a significant reduction in purchasing power as mortgage rates hit 7% on October 28. A buyer with a $3,000 monthly budget can now afford a $442,500 home, down from $475,750 in mid-September when rates were at 6.11% - representing a $33,250 decrease in purchasing power. The monthly payment on the median U.S. home price of $428,000 has increased by approximately $200 to $2,895. The rate increase is attributed to investor concerns about increased government spending and strong economic indicators affecting potential Fed rate cuts.

Positive

• None.

Negative

• Mortgage rates increased to 7% from 6.11% in six weeks
• Buyers lost $33,250 in purchasing power since mid-September
• Monthly mortgage payment on median-priced home increased by $200 to $2,895
• Housing affordability decreased across all analyzed swing states

Insights

Financial Analyst

The surge in mortgage rates to 7% marks a significant shift in housing market dynamics, with substantial implications for both buyers and RDFN's business model. The $33,250 reduction in purchasing power for a $3,000 monthly budget represents a 7% decline in affordability, likely to impact transaction volumes and commission revenues.

The timing is particularly critical as it coincides with Redfin's efforts to stabilize its market position. Rising rates typically lead to reduced transaction volumes, potentially affecting Redfin's revenue streams from both traditional brokerage services and mortgage operations. The company's focus on technology-driven solutions becomes more important as buyers need additional tools to navigate affordability constraints.

The swing state analysis reveals varying regional impacts, with higher-priced markets like Nevada and Arizona facing steeper affordability challenges. This geographic diversity in market conditions could affect Redfin's revenue distribution and operational strategies across different regions.

Redfin reports daily average mortgage rates have increased by nearly a whole percentage point since mid-September, bruising homebuyers’ budgets. The jump in rates comes just one week before a presidential election in which housing affordability is a top issue for voters.

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — A homebuyer on a $3,000 monthly budget has lost $33,250 in purchasing power over the last six weeks, with the daily average 30-year fixed mortgage rate rising to 7% on October 28, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

This is the first time mortgage rates have hit 7% since the start of summer; they’re up nearly one percentage point from the 18-month low they dropped to in mid-September. A homebuyer on a $3,000 monthly budget can afford a $442,500 home with the current 7% mortgage rate. The same homebuyer could have purchased a $475,750 home with a 6.11% 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%. 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% than 7%.

To look at affordability another way, the monthly mortgage payment on the $428,000 median-priced U.S. home is $2,895 with a 7% mortgage rate. That’s about $200 higher than the $2,694 monthly payment with a 6.11% rate.

Mortgage rates are jumping largely because investors are becoming more worried about increased government spending after the election. Additionally, the most recent jobs and inflation reports both reflected a fairly strong economy, making it more likely the Fed makes a small interest-rate cut—as opposed to a big one—at their next meeting.

“My advice for buyers is 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,” said Redfin Economic Research Lead Chen Zhao. “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.”

How rising mortgage rates impact housing affordability in swing states

Mortgage rates jumping to 7% could impact voters’ decisions in the upcoming presidential election. Housing affordability is a top voting issue this year, according to a recent Redfin survey.

Zooming in on the seven swing states that will decide the election, five of them have median home-sale prices lower than the national median of $428,000. Only Nevada ($468,000) and Arizona ($442,000) have higher prices, though they’re only slightly higher. Assuming a typical house hunter in Nevada and Arizona have a $3,000 monthly budget, they have lost about $33,000 over the last six weeks—the same as for the typical buyer nationwide.

In both Georgia and North Carolina, where the typical home goes for $377,000, let’s say the average buyer has a monthly budget of $2,500, a bit lower than in states where homes are more expensive. That buyer can purchase a $368,750 home with a 7% mortgage rate, compared to the $396,500 home they could have purchased with the 6.1% rates that were common in mid-September. That translates to a loss of $27,750 in purchasing power.

Median home prices are comparatively low in Michigan ($266,000), Pennsylvania ($296,000) and Wisconsin ($316,000). Assuming the typical buyer in those states has an accordingly lower budget of $2,000, they can afford a $295,000 home with a 7% rate. They have lost $22,250 in purchasing power over the last six weeks; they could have bought a $317,250 home with a 6.1% rate.

Swing States: How Much Purchasing Power a Typical Homebuyer Has Lost With Rising Mortgage Rates
	Median home-sale price (Sept. 2024)	Realistic monthly budget	Purchasing power w/ 7% mortgage rate	Purchasing power w/ 6.1% mortgage rate	How much purchasing power buyers have lost
Arizona	$442,000	$3,000	$442,500	$475,750	$33,250
Georgia	$377,000	$2,500	$368,750	$396,500	$27,750
Michigan	$266,000	$2,000	$295,000	$317,250	$22,250
North Carolina	$377,000	$2,500	$368,750	$396,500	$27,750
Nevada	$468,000	$3,000	$442,500	$475,750	$33,250
Pennsylvania	$296,000	$2,000	$295,000	$317,250	$22,250
Wisconsin	$316,000	$2,000	$295,000	$317,250	$22,250

To view the full report, including a chart, please visit: https://www.redfin.com/news/housing-market-update-homebuyers-lose-purchasing-power-october-2024/

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241029795056/en/

Contact Redfin

Redfin Journalist Services:

Isabelle Novak

press@redfin.com

Source: Redfin

FAQ

How much purchasing power did homebuyers lose when RDFN reported mortgage rates hit 7%?

Homebuyers with a $3,000 monthly budget lost $33,250 in purchasing power, with their maximum affordable home price dropping from $475,750 to $442,500.

What is the monthly mortgage payment for a median-priced US home at 7% interest rate according to RDFN?

The monthly mortgage payment for the median-priced U.S. home of $428,000 is $2,895 at a 7% mortgage rate.

How did the mortgage rate increase affect swing states according to RDFN's report?

In swing states, buyers lost between $22,250 to $33,250 in purchasing power, with Nevada and Arizona seeing the largest impact at $33,250, while Michigan, Pennsylvania, and Wisconsin saw smaller impacts of $22,250.