Housing
This section of the BDN aims to help readers understand Maine’s housing crisis, the volatile real estate market and the public policy behind them. Read more Housing coverage here.
The average Maine family needs interest rates to drop another percentage point in order to afford to buy a home in Maine.
Interest rates on mortgages need to drop to roughly 5.6% for a family earning Maine’s median household income of $76,442 to afford a $412,000 house, which is the average price of a home in Maine, according to Zillow.
That’s a step lower than where rates sit now, which is roughly 6.3%.
This method assumes the buyer will put a 20 percent down payment on the home with a 30-year fixed-rate mortgage and doesn’t have HOA fees or any regular debt payments or monthly expenses, such as student loans, car payments or child care fees.
The formula also follows the financial guidance that no more than 30 percent of a buyer’s monthly income should go toward housing expenses. This means a family earning roughly $76,450 annually, Maine’s median household income, can afford to spend slightly more than $1,900 each month on housing costs.
While interest rates sometimes get less attention than the median cost of housing in Maine — which has skyrocketed since the pandemic — interest rates on mortgages are still an important piece of the equation when figuring out whether a buyer can afford a home. Higher interest rates means higher monthly payments for buyers.
Dropping from 6% down to 5% doesn’t seem like a long way to go, but the last time interest rates on 30-year mortgages hovered around 5% was in August 2022, according to the Federal Reserve Bank of St. Louis.
Interest rates have stayed within 6% since late last year after coming down from nearly 8% in October 2023, according to the Federal Reserve Bank of St. Louis. That was the highest rates have spiked in more than 20 years.
Mortgage rates hit an all time low in late 2020 and early 2021 when they sank under 3% for several months. At the same time, Maine’s housing market became frenzied as demand for housing grew but there was little inventory, causing prices to rise.
