How rising mortgage rates impact buying power amid possible housing market correction

Yahoo Finance Live anchor Dave Briggs details how rising mortgage rates are affecting homebuyers and the overall housing market.

Video transcript

DAVE BRIGGS: Are we moving closer to Jerome Powell's correction in the housing market? Well, mortgage rates continue to surge, now moving in on 7%. But how does all this translate to your wallet, your monthly payments, and most importantly, the home you can afford, or in this case, you can no longer afford?

A borrower in January who took out a $500,000 mortgage at 3.2% would be on the hook for a $2,162 monthly principal and interest payment over the course of that 30-year loan. Now, at 6.8%, where we are today, that monthly payment would be $3,260 per month, or nearly $1,100 more, per month.

Now, how much less house can you afford today? Data from realtor.com shows the typical homebuyer has lost $107,000 in buying power. Put another way, a household earning the median income and making 20% down payment could afford a $448,700 home at the beginning of the year. Apply today's rates, and that same buyer can now afford a house that costs $341,700.

I wish I had some better news that's on the horizon, but unfortunately, it doesn't look that way. Continued Fed tightening will likely take these rates to at least 7 and 1/2%, if not higher, further eroding your purchasing power and increasing monthly payments. And Rachelle, this is just more pain ahead. And it's really the first indicator that we've seen, housing leads, all of this. Even though we're looking at lagging data, housing is the first part to get hurt. And it looks like a lot more pain is ahead as well, Seana.

SEANA SMITH: It certainly is, Dave, especially when we see what's going on in the housing market. Lots of questions about how big of a pullback we are going to see. Certainly, prices coming down a bit, but the higher mortgage rates clearly pricing even more people out of the market than had already been priced out of the market over the last two years.