Mortgage Rates Hit 7.4% as High Earners Pull Ahead in a Split Housing Market

The average rate on a 30-year fixed mortgage reached 7.4% this week, according to data Freddie Mac released Thursday, up from 6.27% at the same point last year. The rise is widening a divide between buyers who can absorb the cost and those who cannot.

Higher-income Americans are accounting for a growing share of home purchases, while lower-income buyers fall behind, according to data from TD Securities commissioned by Morning Consult. After years of tracking alongside other income groups, Americans earning $100,000 or more are now increasingly likely to say they plan to buy a home.

Who is still buying

Munoz said home prices now sit beyond the reach of most Americans. Buyers with more cash and larger budgets keep transacting, while everyone else falls behind.

The wealthy are also getting help from the stock market, which hit record highs as recently as last week, adding to their purchasing power. “What we’re seeing is the low end is dragging down the overall market,” Compass CEO Robert Reffkin said last month on CNBC.

In Los Angeles, real estate agents Brock and Lori Harris said budget-stretched buyers have begun stepping back. Cash buyers still notice the rates but are less affected by them, Lori Harris said, while a borrower could find themselves priced out of a house they qualified for just two or three months ago.

The 7% line

Rates crossed 7% only in the final week of September, and the move has spooked some shoppers. Mortgage applications last week were 16% lower than the same week a year ago, the Mortgage Bankers Association said Wednesday.

eXp Realty, one of the country’s largest brokerages, saw an unusually high rate of deal cancellations in the weeks after the 7% crossing, said Leo Pareja, CEO of AGNT, the brokerage’s parent company. He called the line “a real barrier” and said it had a psychological effect on buyers, though cancellation rates have since returned to normal for this time of year.

Shoppers still looking for a deal may do better with new construction. The median existing home sold for $417,500 in September, the 39th straight month of annual gains, according to the National Association of Realtors, while the median new home cost $393,700 in August, per Census Bureau data. Pareja said builders are leaning on incentives such as mortgage rate buydowns to attract buyers.

Cash purchases made up 27% of September transactions, down from 30% a year ago, NAR said Tuesday. Mortgage rates tend to track bond yields, which have swung as investors weigh expectations of further Federal Reserve rate hikes to cool inflation. With the midterms weeks away, housing costs are one subject voters are watching closely.

Reporting based on coverage by CNN.