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
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.
To translate that to the prospects of would-be homeowners: 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 the current environment: 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 30-year fixed-rate mortgage averaged 5.78% for the week ending June 16, up 55 basis points from the previous week, Freddie Mac said on Thursday. That was the biggest one-week increase since 1987, said Sam Khater, Freddie Mac’s chief economist. (One basis point is equal to one hundredth of a percentage point.) “The old maxim ‘desperate times call for desperate measures’ appears to have come into play with t …