Many aspiring home buyers are getting shut out of the market due to rising mortgage rates, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. With the 30-year fixed-rate mortgage rising to a 7.63% average this week, potential buyers—particularly first-time home buyers—are forced to redetermine what they can afford. At this week’s rate average, the typical existing condo of $353,800 would translate to a monthly mortgage payment of $2,004, Lautz says.
In response, the share of first-time home buyers is dropping, reaching a 27% market share in September, according to NAR’s latest existing-home sales report, which showed an overall decrease in home sales due to higher mortgage rates and home prices.
However, all-cash buyers, who are immune to the higher borrowing costs, are rising in numbers. The REALTOR® Confidence Index shows that 29% of buyers are skipping paying a mortgage and buying a home with cash only.
Still, Homeownership Can Pay Off
Despite the rising costs of buying, consumers may still be better off with homeownership than renting. Lautz says that consumers should calculate the total cost of homeownership—maintenance, utilities, commuting and more—and the total financial benefit. Based on 2022 Fed data released this week, the median net worth of homeowners was $396,200 versus renters at $10,400, Lautz notes.
“There is no question about the wealth gains that homeownership provides,” she says.
Home buyers may still find ways to save on their mortgage. For example, shopping around with multiple lenders could result in snagging a lower mortgage rate, says Sam Khater, Freddie Mac’s chief economist. A recent study from LendingTree shows the average borrower could save $84,301 over the life of their loan by shopping around for a mortgage. Further, “with research showing down payment is the single largest barrier to first-time home buyers attaining homeownership, borrowers should also ask their lender about down payment assistance,” Khater says. This week, Freddie Mac launched DPA One, a tool to help home buyers identify down payment assistance programs they may be eligible for nationwide.
Freddie Mac reports the following national averages with mortgage rates for the week ending Oct. 19:
- 30-year fixed-rate mortgages: averaged 7.63%, up from last week when it averaged 7.57%. A year ago, 30-year rates averaged 6.94%.
- 15-year fixed-rate mortgages: averaged 6.92%, up from last week’s 6.89% average. A year ago, 15-year rates averaged 6.23%.