Mortgage rates have surged dramatically across the United States over the past six months. According to El Paso Home Buyers, a home buyers company based in the El Paso metro area, these increases are unprecedented in scale. While mortgage rate hikes have occurred in the past, the current magnitude is unparalleled. Nearly every major city across the country is grappling with worsening housing affordability. This trend has forced countless home buyers in El Paso out of the market, pushing them back into rentals.
What Are Interest Rates Right Now For Mortgages?
As of early April 2022, the average rate for a 30-year fixed mortgage stands at 5.10%, according to Bankrate.com. A 15-year fixed mortgage has an average rate of 4.22%. For jumbo mortgages—loans exceeding $500,000—the current average rate for a 30-year term is 5.03%.
Why Are Mortgage Rates Rising?
The Federal Reserve recently raised its benchmark interest rate for the first time since 2018, aiming to curb inflation. Additional rate hikes are expected throughout 2022.
Meanwhile, two other factors are compounding the affordability challenge for first-time homebuyers in El Paso: a tight inventory of available homes and substantial increases in home prices. Together, these conditions have made purchasing a home significantly more difficult and costly. Professional home buyers in El Paso are also encountering fewer opportunities in the current market.
How Are Higher Mortgage Interest Rates Affecting Monthly Mortgage Payments?
Rising mortgage rates have two major effects. First, they drive up monthly payments. Second, they reduce the borrowing capacity of home buyers due to lender-imposed limits on income allocation for housing. Below are two examples illustrating the impact of a 2% increase in mortgage rates:
For a $300,000 home with a 10% down payment and a 30-year mortgage at 4%, the monthly principal and interest payment would be $1,289. If the rate increases to 6%, the payment jumps to $1,618, a $329 monthly increase.
For a $400,000 home under the same conditions, the payment at 4% would be $1,718, but at 6%, it rises to $2,158, an additional $440 each month.
Is There An Affordability Crisis In El Paso Housing?
Yes. Rising home prices and borrowing costs have significantly reduced the number of people who can afford to buy a home. Moreover, the construction industry has struggled to meet demand, resulting in a widening gap between housing supply and demand. This imbalance may take years—or even decades—to resolve. Consequently, many first-time homebuyers in El Paso will remain renters for an extended period, with some never transitioning to homeownership.
El Paso Home Buyers continues to purchase various types of residential properties, upgrading them to modern standards. Their efforts aim to support the housing supply in El Paso.
