The current housing market is showing slight signs of improvement in terms of affordability for buyers. According to the Mortgage Bankers Association, the median new mortgage payment dropped to $2,167 in June, a 2.4% decrease from the previous month. This decline indicates an increase in borrower affordability, which can be attributed to factors such as lower mortgage rates and loan application amounts. Edward Seiler, MBA’s associate vice president of housing economics, noted that declining mortgage rates have boosted purchasing power, luring some borrowers back into the market.
Analysis of Mortgage Rates
Lawrence Yun, chief economist of the National Association of Realtors, also sees promising trends for homebuyers. He highlighted the decline in the median loan amount on new applications in June, which fell to $320,512 from $325,000 in May. Moreover, the 30-year fixed rate mortgage dropped to 6.78% on July 25, down from 7.22% on May 2. While these changes have positively impacted buyers, Yun emphasized that the monthly mortgage payment has essentially doubled compared to pre-Covid years. Thus, despite the slight improvement from month to month, there is still a considerable increase in mortgage payments.
Investors are optimistic about the Federal Reserve potentially cutting interest rates three times in the latter half of the year, which could further enhance housing affordability. Yun noted that while the market is not yet a buyer’s market, increased supply and declining rates are creating favorable conditions for buyers. Chen Zhao, the economic research lead at Redfin, echoed this sentiment, stating that the market is gradually becoming more balanced towards buyers.
Orphe Divounguy, a senior economist at Zillow, added that the market is moving towards a more neutral state, with increasing inventory providing buyers with more options. This sentiment is supported by data showing a 3.1% rise in total housing inventory in June compared to May. In addition, the number of homes with price cuts has increased, indicating that sellers are adjusting their strategies to attract buyers.
While the overall trend shows an improvement in affordability, the situation varies regionally. Selma Hepp, chief economist at CoreLogic, highlighted that areas with substantial increases in inventory may face challenges such as high insurance costs. In response, some sellers are reducing prices to remain competitive in the market. Yun emphasized the importance for buyers to stay within budget amid these changing dynamics.
The current state of home affordability presents a mixed picture for buyers. While there are positive indicators such as declining mortgage rates and increased inventory, challenges like rising prices and regional variations persist. Buyers navigating the housing market must stay informed, set realistic expectations, and adapt to the evolving landscape to make sound purchasing decisions.