Uptick in Mortgage Rates Sapped $25,000 of Buying Power

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That’s how much buying power prospective homebuyers lost last year alone because of rising mortgage rates, according to a new analysis.

In other words, all else being equal, a typical buyer could afford to spend $25,000 less on a home at the end of the year than at the beginning, according to Odeta Kushi, deputy chief economist at First American Financial—and mortgage rates have only gone up more since.

The calculation underscores how borrowing costs are making homes less affordable even before the pandemic-era surge in prices is factored in. A family with a household income of $66,850 in December 2020 could have afforded a home priced at $478,000, but by December 2021 that same family (assuming the same income and a 5% down payment) could have only spent $453,000, according to Kushi. The reason: rates for a 30-year fixed rate mortgage rose from 2.68% to 3.10% (as tracked by Freddie Mac) over that period. 

Interestingly, when an increase in wages is factored in, Kushi’s calculation is vastly different. Workers are in high demand, and wages have gone up. Assuming a 4.9% increase in household income by December 2021, buyers have only lost $3,000 in buying power, she said. 

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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  1. Twitter. “@odetakushi, 8:37 AM · Jan 19, 2022.”

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