7.40% mortgages reshape the path to housing wealth

Mortgage costs are making homeownership a slower route to building wealth. The average 30-year fixed rate reached 7.40% in October, its highest point since November 2023. Realtor.com found that renting a starter property cost less per month than purchasing a similar one across the 50 biggest metropolitan areas. The typical monthly difference was $960, exceeding $11,000 over a year.

For a starter home priced near $299,400 with 10% down, principal and interest came to about $1,866 monthly at 7.40%. Using 4% instead, that portion of the payment was roughly $1,286. The costlier loan also directed less money toward ownership early on. After five years, principal reduction totaled about $14,760 at 7.40%, versus roughly $25,740 with the lower rate.

Price growth is providing less help, too. A broad national measure recorded a 1.9% annual increase in July, while households surveyed by the New York Fed anticipated about 3% yearly appreciation over five years. Homes still offer a place to live, exposure to the property’s full value and stable principal-and-interest costs with a fixed loan. But today’s buyers are spending more on financing while adding equity at a reduced pace.