Homebuyers face a double whammy: rising mortgage rates and rising prices

We just got a striking piece of data from the Consumer Financial Protection Bureau that shows just how much more expensive it has become to buy a home, thanks to rising prices and mortgage rates. The average monthly payment on a new mortgage rose 46% in one year, from $1,400 at the end of 2021 to $2,045 by the end of 2022.

And throughout 2023, home prices and mortgage rates have only continued to climb.

Buying a house has become way less affordable all over the country, but some places are worse than others. Yesenia Aguirre-Chavez has been looking in the Boston area for a year, trying to buy her first house.

“I got approved for a loan for $1 million. And I know that sounds like a lot. But from what I have found, it hasn’t really gotten me very far,” Aguirre-Chavez said.

Aguirre-Chavez is 29 and owns a small business leading hikes and walking dogs. She’s beyond ready to move out of the room she’s renting for $1,400 a month. But …

“I’ve put in maybe seven or eight offers, and every single time, someone offered a little bit more than I did,” she said.

With home prices and interest rates so high, people are increasingly having trouble qualifying for a mortgage, said Young Jo, an economist at the CFPB.

“We noticed a huge jump in the share of applications that were being denied due to too high of a DTI, average debt-to-income ratio,” Jo said.

Most lenders won’t give someone a mortgage if the monthly payment would be more than about 30% or 40% of their income. 

“Even though incomes have gone up, you know, they haven’t gone up enough,” said Eddie Seiler, an economist at the Mortgage Bankers Association.

Seiler said it shouldn’t be like this forever. “As we sort of resolve a lot of this uncertainty, hopefully interest rates will come down. You know, our current forecast has been coming down to the 5.5% range at the end of 2024.”

He said that should help more people get into homes.

In Boston, Aguirre-Chavez is still looking, even though everything feels absurdly expensive for what the buyer gets.

“None of it makes sense,” she said. “None of it makes sense. Rent is outrageous, and that’s why I’ve been so proactive about finding something soon.”

And why, even though she’s frustrated by the market, she’s determined to keep searching.