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While housing affordability remains a challenge for many buyers in the U.S., the situation is improving thanks to lower mortgage rates.
A buyer needs to earn $115,000 to afford the typical home in the United States, according to New report from online real estate brokerage Redfin. That was down 1% from a year ago and the first decline since 2020.
Home payments see biggest drop in four years Redfin tuna also found. For the four weeks ending September 15, the median mortgage payment was $2,534, down 2.7% from the same period last year.
Redfin chief economist Daryl Fairweather said both declines stemmed from lower mortgage rates.
As of September 19, the average interest rate on a 30-year fixed-rate mortgage was 6.09%, down from 6.20% a week earlier. according to Get Freddie Mac data through the Federal Reserve. On May 2, interest rates reached this year’s peak of 7.22%.
“The only reason mortgage payments are down is because of the interest rate effect,” Fairweather said.
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Challenges remain: The typical household’s income is 27% less than what they need to buy a home, or about $84,000 a year, according to Redfin. Housing prices remain high. Redfin found that the median asking price for newly listed homes for sale is $398,475, up 5.4% from this time last year.
Zillow senior economist Orphe Divounguy said that while housing overall remains unaffordable for most buyers, “this is about as good as it gets” as the market generally sees lower mortgage rates, increased inventory and buyers A situation where competition is low.
Here’s what buyers can expect in the coming months.
‘Mortgage rates will change as the economy develops’
Dewanji said lower home loan rates “provide a great opportunity for buyers who have been waiting”.
He said that just because the Fed cuts interest rates, “it doesn’t necessarily guarantee that mortgage rates will continue to fall.”
While mortgage rates are partly affected by Fed policy, they are also tied to Treasury yields and other economic data.
“Mortgage rates are going to change as the economy evolves,” said Melissa Cohn, regional vice president at William Raveis Mortgage in New York.
“If the economy shows signs of weakness … interest rates will come down,” Cohen said. “If we see the opposite, where the economy is solidifying and employment is getting stronger, then rates are likely to go up.”
More homes coming soon
In addition to lower mortgage rates, an increased inventory of homes for sale is making the housing market more favorable to buyers, Divounguy said.
As of the end of August, there were 1,350,000 homes for sale, a quarterly increase of 0.7%. according to National Association of Realtors. Compared with August 2023, inventory levels increased by 22.7%.
Meanwhile, homebuilders’ confidence in the new single-family home market improved in September, according to National Association of Home Builders. Its survey also showed that the proportion of builders cutting prices in September was 32%, a decrease of 1 percentage point. According to NAHB, this is the first decline since April.
“What this tells me is that some builders may start to see an increase in foot traffic,” Diwanji said, adding that the market may become competitive again.
Robert Dietz, chief economist for the National Association of Home Builders, said price growth will depend on the level of existing housing inventory.
“As the mortgage rate lock-in weakens, existing home inventory is expected to rise, which will also put some downward pressure on prices,” Dietz said.
Wait, “You’re trading one difficulty for another.”
Fairweather said the housing market overall was not going to get worse over the next 12 months. Fairweather said if house hunters are discouraged because they haven’t found a home yet, they may have a better chance next year when more listings become available.
But she warned they risked tougher competition.
“You’re trading one difficulty for another,” Fairweather said.
If mortgage rates fall further next year, the number of homes for sale could increase. Most homeowners are Sitting on a loan Mortgage rates hit record lows, creating what’s known as the “lock-in effect” or “golden handcuffs“Effectively, they don’t want to sell and finance new homes at higher interest rates.
“We may see more people buying or selling to buy again,” as high borrowing costs hold them back, Fairweather said.
