Source: MarketWatch —
Pity those first-time house buyers.
On Wednesday, the U.S. Federal Reserve raised the benchmark interest rate by 75 basis points to a 1.5% to 1.75% range, the biggest increase since 1994 as it tries to tame rising inflation, which has reached a 40-year high.
Eric Finnigan, a director at John Burns Real Estate Consulting, wrote on Twitter TWTR, +2.07% that mortgage rates rising from 3% at the start of this year to 6% effectively rules out 18 million households from qualifying for a $400,000 mortgage.
On a $400,000 loan, a 30-year, fixed-rate mortgage at a 3% interest rate would cost homebuyers approximately $1,686 a month, excluding taxes and other fees. That equates to $607,110 in total (with $207,110 in interest).
Compare that to current rates: At 6% that same mortgage would cost approximately $2,398 a month ($863,353 in total with $463,353 interest), a 42% increase in overall monthly repayments on the lower rate.
“The old maxim ‘desperate times call for desperate measures’ appears to have come into play with this latest rate move,” said Mark Hamrick, senior economic analyst at Bankrate.com said in response to the Fed’s 75-basis-point hike.