US homebuyers are facing an increasingly difficult real estate market once again, with the 30-year mortgage rate rising above 7%.
But how difficult is it to buy a house? MarketWatch worked with Redfin to estimate how much a potential home buyer would need to earn to purchase a typical home.
If a homebuyer was paying for a median-priced home of $397,000 with a 30-year mortgage at 7.09% after paying 20% down, he or she would have to pay approximately $2,711 per month, which includes not only principal and interest, but Taxes and Fees. Insurance, too, according to Redfin.
To afford that on a monthly basis, a potential buyer would need to have an annual salary of $108,440. Redfin considers the monthly payment “affordable” if the buyer spends no more than 30% of their income on housing.
Housing affordability is at its lowest level since 2012, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, which is when it began tracking the data.
Only about 38% of new and existing homes sold between October 2023 and the end of December 2023 were affordable for the typical family in America with a median income of $96,300, NAHB said.
With the spring homebuying season quickly approaching, Chen Zhao, head of economic research at Redfin, said higher mortgage rates could favor some buyers.
“So far the market has been slower than expected, with worse than usual weather in January and higher interest rates in January and February,” Zhao said. “However, new listings are up, suggesting buyers may have more to choose from this year and this could lead to increased transactions.”
Tips for home hunters With mortgage rates rising to 7%
For potential homebuyers who are in the midst of house hunting, hang in there. The market is expensive. It's tough, so be prepared.
For starters, don't underestimate the competition. 16% of homes sell for above list, and a third of buyers pay all cash, which some homeowners prefer because it gives them access to money quickly. So make sure you and your real estate agent know what the best offer is before going to the seller. Don't give up the ball in a hot market.
Ask about sales incentives. Mortgage discounts and price reductions may be back on the table for newly built homes in particular. Buydowns allow the buyer to spend more money up front and lower their mortgage rate either permanently or temporarily. Ask for these incentives, and make sure you don't leave any deals on the table.
But don't buy for the sake of buying, especially when the rental market is declining and rents are falling. The rental market is a good place to park your car until you can save enough money to buy a house. You don't want to be poor at home, as they say.
Meanwhile, although mortgage interest rates are about to fall in the latter half of this year, “don't necessarily wait for them to drop before you buy,” Zhao said. “When that happens, rates may go up. If you buy now and rates go down, you can refinance.”
