Rising mortgage rates reduced home purchase power by 6%: Redfin

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A typical homebuyer has already lost over 6% of purchasing power because of rising interest rates since the start of the year, a study by Redfin found.

A buyer with a monthly housing budget of $2,500 and able to make a 20% down payment could afford to purchase a $473,750 house at the start of the year, when mortgage rates were at 4%.

Now that rates are at least 75 basis points higher, that same borrower can only afford to purchase a $444,000 home.

With a 5% interest rate, that buyer could only purchase a $434,500 home; at 5.5%, the price point falls to $416,500 and at a 6% interest rate, a buyer can afford only a $399,750 property, a reduction of over 15% in purchasing power.

"Every fall and winter we see prices decline relative to spring and summer, but this year's seasonal declines have been more extreme as buyers, especially in coastal markets, are finally reaching a limit in terms of how much they are willing to pay," Redfin Chief Economist Daryl Fairweather said in a press release.

"Sellers haven't quite come to terms with the fact that they no longer have buyers wrapped around their finger. This push and pull is likely to continue until early 2019 when the home buying season picks back up."

But even as the rate of price increases moderates, mortgage rates are expected to continue increasing in 2019, resulting in fewer homes being affordable, Redfin said. Next year, price drops are not expected for most markets removing one way that affordability could increase.

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