Today’s home buyers face an increasingly uphill battle in their quest to own a home, as prices continue to rise, inventories remain low and mortgage interest rates are surging. The average rate on a 30-year mortgage touched 5% for the first time since 2011 according to Freddie Mac, while the median home price sale was up 17% from a year ago to a record high of $389,178. This has driven the monthly mortgage payment on the median asking price home to a record $2,288, up 35% from a year ago when mortgage rates were 3.04%.
The surge in home prices is, in part, responsible for a robust move in household wealth, rising 15% in the 4th quarter compared to a year ago. For first-time home buyers, however, homes are increasingly becoming unaffordable. Mortgage purchase applications were down 6% from a year ago, while new listings of homes are down 8% and active listings are down 23% from a year ago and roughly 50% from this time in 2020. Increasing mortgage payments and potential disruption in the housing market could have broader economic implications, as housing activity tends to be a leading indicator for retail sales. Consumer activity has remained robust due to strong wage gains and a healthy balance sheet, but a deterioration in confidence or activity would be a drag on economic growth.