AUSTIN (KXAN) – The average long-term mortgage rate has risen to 7.57%, reaching a 23-year high, according to the Austin Board of Realtors.
Rates may even breach 8%, increasing the income a family unit would need to earn to comfortably afford a typical home, according to Zillow.
At the current rate in Austin, the income needed to afford a typical home is $107,000 annually. If the mortgage rate increases to 8%, a household will need to earn around $114,000 a year to comfortably afford a standard Austin home, according to a Zillow analysis. This prediction is based on the 30% income threshold commonly used as a guideline for homeowners.
“The probability that mortgage rates could reach 8% is certainly higher now than it was in months past,” said Clare Losey, Ph.D., housing economist for the Austin Board of REALTORS.
“Higher mortgage rates diminish purchase affordability or the homebuyer’s potential purchasing power. So, in essence, each increase in the mortgage interest rate means that the household has to earn a higher required qualifying income to buy the same priced home,” she continued.
Losey said whether mortgage rates will continue to increase depends on whether the 10-year Treasury yield, which lenders look to for pricing loans, will remain high. She said there will be more clarity at upcoming Federal Reserves meetings.
Because economic data continues to be stronger than expected, the Federal Reserve continues to initiate rate hikes, Losey said. “If we were to see the labor market cool off a little bit and we were to see inflationary pressures continue to ease, then the 10-year Treasury yield would de-escalate somewhat which would put downward pressure on mortgage rates,” she continued.
“Essentially, as the 10-year Treasury yield remains elevated, mortgage rates will also remain elevated,” Losey added.
“What’s happening right now is particular buyers – especially first-time buyers and lower-income buyers – are being priced out of the market. They just cannot afford the inventory on the ground,” she said. “In Austin, where throughout the [Metropoliton Statistic Area], fewer than 10% of homes sold are priced under $300,000, you can imagine just how much of an impact an increase in mortgage rates is having on our first-time and low-income buyers.”
Still, Losey said we are quick to forget how high mortgage rates were in the later part of the 20th century.
“We saw mortgage rates at upwards of 15%,” she said. “We’ve been accustomed to this lower rate environment for a while.”
And though mortgage rates have topped 7.5%, Losey pointed out that home-purchasing potential has only diminished by about 4% compared to this time in 2022. Home-purchasing potential decreases when home prices remain high but wages and income do not, according to Texas A&M University Real Estate Research Center.
“But of course, yes, [rates] are affecting demand, especially from first time and low income buyers,” she said.