Home buying costs have shot up to a 23-year high across the US. The average cost of borrowing is the highest since 2000 at 7.31% – climbing from 7.1% in the space of a week, according to mortgage giant Freddie Mac.
The increase is mainly attributed to federal efforts to tackle inflation, and Freddie Mac said the rise is accompanied by exploding house prices. Meanwhile, the Federal Reserve said it intends to keep interest rates high at least until next year.
The average price of a home in the United States was $230,000 in 2020, but by 2023, this had shot up to $330,000, and the reasons are varied. Supply and demand divergences are the primary cause, with the country experiencing a slow supply alongside a rise in demand, as well as an increase in investor purchases that elevate competition for the limited number of properties available.
In 2010, 10% of US homes were owned by investors, but by May this year, this had risen to 20%. A further contribution is the reluctance of older homeowners to sell, with record-low numbers opting to move into senior living facilities. Furthermore, owners are less likely to sell due to the cost of purchasing, adding to a circle of low availability and high purchase prices.
The situation varies from place to place, but the trajectory remains upward overall. The cities with the highest price rises in recent months are Chicago, which saw a 4.4% rise over the summer, Cleveland, where prices are up 4% since June, and New York, where the cost has increased by 3.8%.
Some cities correspondingly have seen prices drop, including Las Vegas, where there has been a fall of 7.2% since last year, and Phoenix, which is down 6.6%. In the Midwest, prices rose on average 3.2% since 2022, and there was an increase of 2.3% in the Northeast for the same period.
Nationally, prices have risen 5.3% on average since January of this year.