As consumer-goods inflation has continued to surprise economists and shoppers alike with its ferocity, increasingly costly mortgages are putting first-time home buyers at a worsening disadvantage, and placing the ‘American Dream’ of owning one’s home even further out of reach.
Bidding has already driven home prices to unprecedented highs, but growing demand for loans has sent mortgage rates to levels unseen in years. The cost for a 30-year loan has just hit a two-year high, having risen 20% since Christmas, Bloomberg reports.
While those who already own homes have the advantage of benefiting from rising prices in their previous home, allowing them to more easily trade up, first-time buyers must make do with rising prices and rising mortgage rates.
Costs for 30-year loans hit a more than two-year high of 3.69% last week, rising about 20% just since Christmas. Further increases are expected as the Federal Reserve, trying to curb inflation, hikes its benchmark rate. That’s a daunting prospect for entry-level buyers when affordability is already at its worst since 2018.
And as we reported earlier this month, first-time buyers are already seeing their finances stretched thin as those who have managed to buy have seen the percentage of their incomes spent on mortgage payments jump to about 25.6%, according to the NAR. That’s the highest in three years.