It’s no secret that home prices are significantly more expensive than they were at the beginning of the COVID—19 pandemic. The current rate at which housing prices increase is slower than the 2020 and 2021 growth rates, but homeownership remains costly and unaffordable for many potential homebuyers. Both existing and new home sales prices increased between October 2021 and 2022, while mortgage rates more than doubled. Recent data analyzes the median sales prices in October 2022.
Mortgage Rates More than Doubled
In October 2021, the average 30-year fixed-rate mortgage sat at 2.99%. The following list shows the average mortgage rate for select months throughout 2022. The below rates come from the first week of each respective month.
- January: 3.22%
- March: 3.76%
- April: 4.72%
- May: 5.27%
- August: 4.99%
- September: 5.66%
- October: 6.66% in October
- December: 6.49%
Current rates for the 30-year fixed-rate mortgage are 217% higher than they were in October 2021, meaning borrowers have to pay a much higher premium on their loans than last fall. Potential buyers can use the RealtyHop Mortgage Payment Calculator to calculate how much more the monthly payments would be on a mortgage now compared to last year.
According to the calculator, a homebuyer purchasing a $500,000 property with 20% down and a 2.99% mortgage rate (October 2021’s rate) would pay $2,821 monthly. Simply adjusting the mortgage interest to the current rate of 6.49% would increase the monthly payments to $3,663, assuming all other factors remain the same.
Times have changed, and prospective homebuyers might have to be more patient to wait for a deal that works for their budget. While there may be a chance to refinance mortgages later at a lower rate, it could take time for mortgage rates to decrease significantly.
Existing Home Prices are Decreasing but Still Up Annually
Recent data shows that existing home prices (i.e. used homes) have increased by 6.5% from October 2021 to October 2022. In October 2021, the median existing-home price was $355,700. By June 2022, that number increased to $413,800. However, four straight months of declines brought the median sales price down to $379,100 in October 2022. The median sales price for an existing home increased by $23,400 over one year.
A homebuyer purchasing a $355,700 home in October 2021 with 20% down at a 2.99% would pay $2,335 monthly, according to RealtyHop’s Mortgage Payment Calculator. Meanwhile, a $379,100 home with 20% down and today’s current rate of 6.49% would have to pay $3,052 monthly.
The current market isn’t as strong of a seller’s market as it used to be. Falling home prices and declining homebuying demand have put more power in favor of the buyer compared to a year ago. However, buyers have to be prepared to pay significantly more for the same property.
New Home Prices Outpace Existing Homes
Unlike those of existing homes, prices for newly built homes were at an all-time high in October 2022. New homes went for a median of $427,300 in October 2021 and for a similar $427,400 in February 2022. From there, new home prices experienced some valatlity but ultimately ended up at a high of $493,000 in October 2022. The median sales price of a new home has increased by $65,600 over the past year. >
A homebuyer purchasing a new home for $427,300 in October 2021 with a down payment of 20% at a 2.99% mortgage rate would pay $2,576 monthly. A $493,000 home with the same down payment and a 6.49% mortgage rate will cost a potential homebuyer $3,627 monthly. Over the long-run, the difference between these monthly payments equates to a difference of more than $12,000 a year, or $360,000 over a 30-year mortgage term.
What Does a Changing Market Mean For Potential Homebuyers?
Between October 2021 and 2022, new home prices increased by 15.5%, much higher than the 6.5% increase among existing homes. While existing home prices may continue to fall steadily over the next year, new home prices could continue to increase and become more expensive for potential buyers. Buyers considering purchasing a new home may consider purchasing an existing home to save on their mortgage payments.
To add to the increasingly high cost of homeownership, mortgage rates have more than doubled over the last year. However, mortgage rates did decrease from 7.08% in November 2022 to 6.49% as of December 1st, 2022. For every 0.5% that mortgage interest rates increase, homebuyers lose 6% of their purchasing power. Therefore, homebuyers now have 42% less purchasing power than they did at the end of 2021.
However, this does not mean that hope is lost for potential buyers. High-interest rates are starting to bring home prices down overall, indicating the possibility of a cooling market throughout 2023. Patient homebuyers who wait for a property that fits their current budget can consider refinancing if interest rates decrease down the line.
