Yahoo Finance's Ronda Lee reports on the slowdown in the luxury housing market as mortgage rates climb.
AKIKO FUJITA: It's been a rough year for home buyers with mortgage rates now above 6% and a massive affordability crisis now taking hold. Luxury home buyers have largely been exempt from that conversation around struggling real estate, but a new report by Redfin shows rising mortgage rates are finally catching up to them. Yahoo Finance's Ronda Lee is here with that latest report. And Ronda, what does that tell you about where the housing market is when we say even luxury home buyers are thinking twice?
RONDA LEE: So the economists have said that this has been the worst housing affordability crisis this year. First-time homebuyers and entry-level homebuyers have been pushed out of market since the beginning with low level inventory and rising rates. Earlier in the year, high end home buyers had an edge. They were using their own cash offers to win bidding wars. Mortgage rates have surged above 6%, causing the luxury home price-- luxury home sales to plunge by 28%.
So what's happening is, if misery loves company, then regular home buyers in the market can rejoice in the fact that knowing that even high end home buyers are now in the same boat of maybe this isn't a good time for me to buy.
AKIKO FUJITA: So where does that leave buyers right now? I mean, obviously, their buying power has been decreasing because those rates have been going up. Prices may be coming down on some end, but that's being padded to the actual monthly mortgage they're going to have to pay now.
RONDA LEE: So here's the deal. Most analysts say that for every 1% increase in rates, buyers are losing about 50 grand in buying power. So for your luxury home high end buyer, if in the beginning of the year, their budget was $1.5 million, now their budget is 800,000.
So for every-- everyone's feeling the crunch now. So that in particularly, now you have the inflation, you have the fluctuation with the stock markets. They're saying that some high end buyers are looking elsewhere for their investments, instead of getting that second home or buying at these rates.