The average homeowner is now forking out $2,800 just to cover monthly mortgage payments, a new report showed.
Soaring home prices and surging mortgage rates have made it even more expensive to purchase a home. The median monthly payments have now increased to $2,800 for the four weeks ending April 14.
The increase marks an 11% jump from $2,775 over the past year and represents 58% of the median pre-tax monthly income of $4,773 for full-time workers in the United States, per data from Redfin.
Why Are Mortgage Payments Rising?
Part of the reason why monthly payments are rising is the sharp increase in mortgage rates. The average 30-year fixed mortgage rate spiked to 7.4% this week, marking the highest level in five months, according to Mortgage News Daily.
The median home sale price also jumped by 5% in the past year, bringing it to $380,250. This is just $3,095 shy of the June 2022's all-time high, per Redfin. Home prices are still predicted to rise a further 5% this year. If the forecast is correct, that means home prices could increase to $432,699 by the end of the year.
Furthermore, inflation spiked to over 9% in the summer of 2022, which resulted in a rising cost of food, energy, rent, and other goods. It has since settled at 3.5% but is still higher than the Federal Reserve's 2% target to begin cutting interest rates.
Currently, American households in 22 states and Washington, D.C., hoping to buy a home need to make $110,871 to comfortably afford a median-priced home of $420,343. In general, a home is "affordable" when a household does not spend more than 28% of its annual gross income on mortgage payments.
It is unclear what will happen to the housing market in the near future. However, Shark Tank investor Barbara Corcoran believes home prices will "go through the roof" once mortgage rates fall by even a single percentage point.
Investor Bill Pulte also said the average home price could increase by 20% if the Feds cut interest rates too soon. If this happens, home prices would go up to $500,000.
