August 24, 2023 by Dana Anderson

Daily average mortgage rates are sitting at 7.4%, close to their highest level in more than two decades. High rates, combined with high home prices, have pushed home-purchase applications to their lowest level since 1995.

Historically high mortgage rates are cutting into buyers’ budgets. A homebuyer on a $3,000 monthly budget, for instance, can afford a $429,000 home with a 7.4% mortgage rate, roughly the daily average on August 23. That buyer has lost $71,000 in purchasing power since August 2022, when they could have bought a $500,000 home with an average rate of about 5.5%.

The daily average 30-year mortgage rate was 7.36% on August 23, down slightly from a peak the day before but still close to its highest level in more than 20 years.

To look at affordability another way, the monthly mortgage payment on the typical U.S. home, which costs about $380,000, is roughly $2,700 with a 7.36% mortgage rate. The monthly payment would be $400 lower–around $2,300–with last year’s 5.5% rate.

The combination of high monthly mortgage payments and historically low housing inventory has pushed many would-be homebuyers out of the market. Home-purchase applications dropped to their lowest level in nearly 30 years during the week ending August 18, and Redfin’s Homebuyer Demand Index–a measure of requests for home tours and other buying services from Redfin agents–was down 7% year over year.

“The buyers out there right now are the ones who need to move,” said Phoenix Redfin Premier agent Kim Lotz. “I’m working with one couple from out of state who are coming to Phoenix because of a job transfer; they don’t have the luxury of waiting for mortgage rates to come down.”

There’s more demand in some parts of the country than others. In Nashville, TN, for instance, Redfin Premier agent Kristin Sanchez says there are more buyers than sellers.

“Some buyers are hoping they can get a home for under asking price to make up for high interest rates because they’re hearing the housing market is slow. But what’s happening nationally isn’t necessarily true here,” Sanchez said. “Tennessee is a hot spot for people relocating from other states. There are plenty of jobs, and the area is starving for inventory. So despite high rates, there are more house hunters than houses for sale. Homes that are priced competitively and in good condition are typically selling at or just over asking price with two or three offers.”