Things are still pricey and getting pricier

The average 30-year fixed mortgage rate is almost at 7% now, more than double what it was at the beginning of the year and the highest in 20 years. Despite that, prices haven’t dropped all that much.

Nearly a quarter of homes that were for sale in September saw a price drop, but the median price was still 8% higher than it was in September 2021.

Those high interest rates and steep prices mean both aspiring homeowners and those who already own homes are hesitant to make a commitment.

You can see why buyers are put off: if you bought an average home now, the monthly mortgage payment would be 55% higher than if you’d bought at the beginning of 2022, according to Zillow.

That would leave the median household in the country spending 30% of its income on just principal and interest payments when buying a house, according to Zillow, making them “house burdened.” And that 30% excludes everything else that comes with homeownership: taxes, insurance and maintenance.

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High costs are leading to lost deals

About 60,000 deals were called off in September — that’s 17% of all the homes that went under contract. It’s not just buyers pulling out, but sellers, too.

According to another report by Redfin in September, 85% of homeowners have a locked-in mortgage rate well below the current rate and are worried that if they sell, their next rate could be several percentage points higher. That’s contributing to people staying in place, translating into fewer houses on the market, which then keeps prices high — almost like a housing stalemate.

And it’s a problem that could carry on for the long term as fewer new builds may come on to the market too. Home builder confidence hit its lowest level in 10 years in October, according to the National Association of Home Builders (that is, with the exception of spring of 2020). It dropped eight points this month to 38.

And while some say the market is becoming more balanced, Robert Dietz, the National Home Builders Association's chief economist, doesn’t think so.

“The truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers,” said Dietz in a press release.

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About the Author

Lauren Bird

Lauren Bird

Staff Reporter

Lauren Bird was a former reporter for Moneywise.com. Before writing about personal finance Lauren reported and produced for CBC and BBC Radio. Her work has also appeared in The Atlantic.

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