WASHINGTON — A sharp increase in mortgage rates is widening the divide between higher-income Americans who can afford to purchase homes and lower-income buyers increasingly priced out of the market, according to a newreport.
The average 30-year fixed mortgage rate reached 7.4% this week, Freddie Mac reported, up from 6.27% a year earlier. The increase is adding to affordability pressures from elevated home prices and limited inventory.
CNN reported that the housing market increasingly reflects the nation’s broader “K-shaped” economy, with wealthier consumers better positioned to absorb rising costs while households with tighter budgets struggle.
“It’s very expensive to get into a house if you’re looking for one right now,” Oscar Munoz, head of U.S. economics at TD Securities, told CNN. “The only people that we find are driving transactions in the housing market are high-income consumers.”
Research from TD Securities, commissioned by Morning Consult, found Americans earning $100,000 or more have become increasingly likely to express interest in purchasing homes compared with lower-income households.
Mortgage Applications Decline
The Mortgage Bankers Association reported mortgage applications last week were 16% below year-earlier levels, reflecting weakening demand among borrowers.
CNN reported that real estate professionals are seeing buyers retreat as higher mortgage rates push monthly payments beyond their budgets.
In Los Angeles, real estate agents Brock and Lori Harris said cash buyers remain active, while mortgage-dependent buyers face greater challenges. “Whereas a buyer who is taking out a loan might be priced out of a house they qualified to buy just two or three months ago because of these high rates,” Lori Harris told CNN.
Cash transactions accounted for 27% of September home sales, down from 30% a year earlier, according to the National Association of Realtors.
Leo Pareja, CEO of AGNT, parent company of eXp Realty, told CNN that mortgage rates exceeding 7% contributed to a temporary increase in canceled transactions.
New Homes Offer Potential Savings
One potential bright spot for buyers is new construction, where builders are increasingly offering incentives, including mortgage rate buydowns.
According to CNN, the median existing-home price reached $417,500 in September, up 1.3% annually and marking 39 consecutive months of increases.
By comparison, the median new-home price was $393,700 in August, according to Census Bureau data.
Pareja said builders have greater motivation to negotiate than existing homeowners, who can withdraw their properties rather than accept lower offers.
The widening affordability gap comes as housing costs remain a major concern for voters ahead of November’s midterm elections.
