In the United States, the American dream of owning a home is becoming increasingly difficult for many as monthly mortgage payments continue to skyrocket. According to a recent analysis from real estate investment firm CBRE, the average monthly payment on a new home has nearly doubled since the beginning of the Biden administration, soaring to an eye-watering $3,322 in the third quarter of this year. This marks a staggering 90% increase since late 2020 when the average monthly payment was just $1,746.
Experts are pointing to the Federal Reserve’s aggressive efforts to boost interest rates as the driving force behind the surge in mortgage payments. The Fed’s strategy aimed to curb rising inflation by raising interest rates from near-zero in April 2020 to a 22-year high of between 5.25% and 5.5%. This move has made borrowing more expensive, leading to higher mortgage rates.
Hannah Jones, a senior economic research analyst at Realtor.com, says she expects interest rates to decrease by next year, which could potentially bring down monthly mortgage payments by $200 to $400. However, for first-time homebuyers, the current market is proving to be a significant hurdle.
“It is definitely a very, very challenging market to be a first-time homebuyer,” Jones said. “First-time homebuyers don’t inherently have a home sale to leverage into a home purchase, and so it does make it very challenging to save for a down payment, especially a down payment large enough to purchase a home at today’s prices.”
Despite inflation hovering around an annual rate of 3.2%, the Fed has stabilized interest rates in recent meetings since July. As a result, mortgage rates have shown signs of easing, with the latest data from Freddie Mac revealing a decline to 7.03%, the lowest level recorded since early August.
Jones advises potential buyers not to wait for rates to drop even further but suggests finding creative solutions to navigate the current market.
“The worst thing you can do is get yourself in a situation where you purchase a home you cannot afford or it is not comfortable,” she said. “There are a lot of creative solutions that we are seeing, such as moving to areas that are maybe a little bit further out or moving to areas that are a little bit lower priced.”
Matt Vernon, head of consumer lending at Bank of America, also warns against waiting for rates to decrease even more. “Timing the market is never good,” he told Insider. “It’s really when you’re financially steady, emotionally ready, and ultimately, you find that home that fits your dreams and/or your needs.”
