by - Last year, up to 26 million households gave up on buying a home, according to a new study.
- The National Association of Realtors says the average monthly mortgage payment is increasing by $900 a year.
- Rising mortgage rates, combined with higher rents, are blocking out millions of first-time buyers.
Up to 26 million households have been priced out of the U.S. housing market this year as stubbornly high prices and rising mortgage rates create barriers for first-time buyers, according to new figures.
The National Association of Realtors (NAR) found that the average monthly mortgage payment increased by $900 last year, making home loans unaffordable for a third of buyers.
brutal market
The 30-year mortgage rate rose to 6.3%, its highest level since 2008, after the Federal Reserve continued to raise rates to rein in inflation. It started the year at about 3.2%, with a relatively modest 6 million households priced for March, according to NAR.
Senior economist Nadia Evangelou told Insider that rising mortgage rates haven’t brought home prices down yet, in fact, they’re up 1.2% between the second and third quarters of the year.
“Despite fewer buyers in the market, demand for homes continues to outpace supply. Even though stocks have recovered, that’s still not enough to drive home prices down,” he said.
Evangelou said prospective first-time buyers are also facing rising rents, reducing the amount they can save for a deposit.
The rent consumer price index rose 7.5% in the 12 months to October. Evangelou said it has contributed to first-time buyers now accounting for 26% of total buyers, up from 34% a year ago.
‘I feel pretty small’
Actuarial accountant Rachel Linehan and her partner Dan, both 23, told Insider earlier this year that they had been trying to buy a house in Framingham, Massachusetts for four months.
At the time, he said, a “pretty brutal” market of rising rates had slashed their budgets by as much as $100,000 and limited the homes they could afford in their preferred region.
Linehan remembers arriving at an open house and waiting in a line around the corner. He previously felt that he and his wife had a “pretty good chance” of buying a house with a decent salary, no debt, and no children.
“It’s pretty depressing. We left feeling pretty hopeful, but that hope faded over time and we felt pretty small,” he said. “We’re soon getting to a point where we can give up.”
Rates peak, but pain ahead
Evangelou says disappointment awaits anyone who wants to buy a house now. Prices will remain under pressure rather than collapsing, although NAR thinks mortgage rates have peaked – dropping from 6.9% in October.
However, he points out that now is a slightly better time to buy because of the decline in mortgage rates, with the average mortgage payment being $140 lower than last month.
Indeed, the economist says, a large number of excluded buyers are starting to have an effect.
“As a result, we have many buyers priced out of the market, and demand for housing has cooled as many buyers have dropped out of the market,” Evangelou said, adding the nine-month decline in home sales volume. It was the longest recorded decline.
A rebound in home buying is expected in 2024, according to NAR, but meanwhile, a potential recession and a stubborn market could mean more pain for prospective homeowners.
