The cost of buying a house continues to increase after the Fed raised mortgage rates to its highest level in 20 years. On Oct. 27, mortgage rates were increased to 7.1% which was the highest since 2001, according to Bloomberg.
The increase is double the rates that were present in 2020 when buyers could purchase homes for as low as 3.14%.
With a 3.14% mortgage rate, a $3,000 principal and interest payment would allow a buyer to purchase a home for $873,600 house, with 20% down. But with a 7.08% rate, the same payment would only yield a $559,200 house, according to the Los Angeles Times.
The rising rates have impacted sells across the country. The Department of Housing and Urban Development and Census Bureau revealed that home sells have dropped by 17.6% from a year ago.
When interest rates were low, the race to buy homes led to a very competitive market. Some buyers needed to pay three to four times over the asking price to secure homes as inventory remained low. This led to many homes being overvalued in a tight a market.
Although home sales are falling and prices declining in some markets with the recent rate hikes, the market has yet to achieve balance.
Most experts don’t believe that the rate hikes would lead to a housing crash that’s similar to what occurred in 2008, but housing prices are expected to decline from the peaks that were seen over the past few years.
