The Federal Reserve on Wednesday announced the latest incremental jump in its series of rate hikes meant to curb inflation, and the most recent gain is sending housing affordability to a new low, Business Insider reports. Home prices are still up to record highs while overall supply is posting stagnant growth, but elevated costs are forcing some sellers to drop their asking prices, a small silver lining in a rapidly overheating market.
Some experts predict that overpriced markets could soon reach their tipping points and see a double digit decrease in home prices, but even then, the housing market will be nowhere near normal.
A general rule of thumb is every percentage point increase in interest rates corresponds to a 10% decrease in purchasing power. In other words, a buyer who could afford $2,000 monthly payments on a $414,000 home with a 3% mortgage, could only afford a $320,000 house with a 6% mortgage.
It's not just interest rates that are going up — everything else in the economy is getting more expensive as pandemic-era wage increases begin to taper off, leading to a dramatic drop in the National Association of Realtors affordability index, which has fallen nearly 40 points this year.
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