Homebuyers lost $71,000 in purchasing power in 2023

• A Redfin analysis showed that the average homebuyer lost $71,000 in purchasing power over the past year.
• This is due to higher mortgage rates, with the average 30-year fixed interest rate close to 7.5% over the past week.
• This mortgage rate was only 5.5% in August last year, but house prices have not budged as prices continue to rise.

The average home buyer lost about $71,000 in purchasing power over the past year, according to a new report Redfin analysis

This is due in large part to rising mortgage rates, which have created a housing affordability crisis by raising the cost of borrowing for potential homebuyers.

Mortgage rates reached a 23-year high over the past week, with the average 30-year fixed interest rate at 7.48%, according to Mortgage News Daily. At that rate, a homebuyer with a budget of $3,000 per month in mortgage payments could afford to buy a home worth $429,000, Redvine estimates, which is about the $422,137 median home price in the United States.

But that’s about $71,000 less than what these buyers could have afforded in August last year, according to the real estate listings site. At the time, a budget of $3,000 per month was enough to fund a $500,000 home, given that the average thirty-year fixed interest rate hovered around 5.5%.

Housing affordability conditions have deteriorated over the past year thanks to rising interest rates in the economy, which has impacted mortgage rates to remain close to two-decade highs. This has increased the cost of borrowing for homebuyers, marginalizing many outside the existing housing market.

Higher rates have also indirectly pushed up home prices, as many existing homeowners are looking to hold on to properties that have been financed at lower interest rates for years. This created an imbalance between supply and demand, which drove up sales prices.

Home prices are now about 40% higher than they were before the pandemic, according to a previous Redfin analysis, and the median home sale price is just 2% away from re-testing the record set last summer. Meanwhile, existing home sales were down nearly 19% from a year earlier, according to Fannie Mae data.

But affordability problems are likely not going away anytime soon, as mortgage rates are expected to remain high for the next few years. Industry experts say rates will need to return to the 5% range to unlock more inventory and downward pressure on house prices, although the 30-year fixed rate is largely expected to drop to just 6% by the end of this year.