Kham/Reuters
- Mortgage holders are shelling out a record $2,800 on average to cover their monthly payments.
- Mortgage costs have soared due to rising house prices and soaring interest rates.
- Mortgage rates are at a five-month high after stubborn inflation dashed hopes for rate cuts soon.
The average home owner is now forking out a record $2,800 just to cover their monthly payment, as soaring house prices and surging interest rates have made it costlier than ever to own a home.
The median monthly mortgage payment has jumped 11% over the past year to hit $2,775 for the four weeks ended April 14, Redfin data shows.
That's an astounding 58% of the median pre-tax monthly income for full-time US workers of $4,773 in March — calculated by taking the government's latest weekly earnings figure and multiplying it by four.
Rising rates are largely responsible for the sharp increase in mortgage payments. The average 30-year fixed mortgage rate spiked to a five-month high of 7.4% this week, per Mortgage News Daily. The upshot is that anyone taking out a mortgage to buy a home is paying a lot more every month than in the past.
The median sale price for homes has also jumped 5% in the past year to $380,250 — only about $3,100 short of the record high in June 2022, per Redfin. People are probably borrowing more to afford increasingly pricey homes, meaning they have to pay more each month.
The painful rise in mortgage costs is just one headache for households. Inflation spiked to a 40-year high of over 9% in the summer of 2022 and was still running at 3.5% in March, well above the Federal Reserve's 2% target. That speaks to the rising cost of food, energy, rent, and other goods and services for consumers.
The Fed's response to surging prices has been to hike its benchmark interest rate from virtually zero to more than 5%. That has driven 30-year mortgage rates from about 3% at the start of 2022 to more than 7%, which has caused monthly mortgage payments to spike.
The rate hikes have also raised monthly payments for car loans, credit cards, and other types of debt. The result is that consumers face a double-whammy of painful price increases and steeper monthly interest payments.
Mortgage rates did ease earlier this year, but have rebounded as stubborn inflation has spurred the Fed to push back rate cuts.
The steep rise in mortgage rates has also frozen the US housing market, as prospective sellers are loath to give up lower rates they've locked in by listing their homes, and potential buyers are balking at near-record prices and chunkier monthly mortgage payments.
The affordability crisis contributed to sales of existing homes dropping 4.3% between February and March, the biggest percentage decline since November 2022.
The bleak picture has led some experts to predict a buying boom once rates fall. "Shark Tank" investor Barbara Corcoran has declared that house prices will "go through the roof" if rates drop by just a single percentage point, while investor Bill Pulte recently suggested they could spike 20% to a record $500,000 if the Fed cuts too soon.