Recent data shows that homebuyer affordability is improving, albeit modestly, as lower mortgage rates and a slight decrease in mortgage payments have given some relief to buyers. According to the Mortgage Bankers Association, the median new mortgage payment dropped to $2,167 in June, a 2.4% decrease from May’s figure of $2,219. This shift is largely attributed to a combination of lower mortgage rates and a moderation in home price growth.
Despite these positive signs, experts caution that affordability remains a challenge, particularly for first-time homebuyers. “Homebuyer affordability conditions improved for the second straight month as declining mortgage rates continue to increase purchasing power,” explained Edward Seiler, the MBA’s associate vice president of housing economics. The reduction in mortgage payments has been a contributing factor, making it easier for some buyers to re-enter the housing market.
Modest Improvement, Yet Challenges Persist
While the recent declines in mortgage payments are encouraging, they are still far from the levels that existed before the COVID-19 pandemic. Lawrence Yun, the chief economist for the National Association of Realtors, noted that while affordability is moving in the right direction, it remains a “very small improvement” compared to pre-pandemic conditions. “The typical monthly mortgage payment has essentially doubled from pre-Covid years,” said Yun, pointing out that before the pandemic, a $1,000 mortgage payment was common, whereas today, payments are routinely over $2,000.
In June, the median loan amount for new applications fell to $320,512, down from $325,000 in May. This slight reduction in loan amounts reflects a moderation in home price growth, which is also contributing to improved affordability for buyers. The 30-year fixed mortgage rate also dropped to 6.78% by July 25, down from 7.22% in early May, according to Freddie Mac data.
A Shift Toward a More Balanced Market
The overall outlook for housing affordability is shifting, with more inventory entering the market and fewer bidding wars. Total housing inventory at the end of June stood at 1.32 million units, marking a 3.1% increase from May and a 23.4% increase from the same time last year. This increase in inventory, coupled with declining mortgage rates, has led some experts to suggest that the market is becoming more favorable to buyers.
“With more inventory, buyers have more options,” said Selma Hepp, chief economist at CoreLogic. “This is a positive trend for buyers, especially in markets where inventory is increasing the most.” In some regions, such as the South, competition has eased significantly, providing a more buyer-friendly environment.
However, despite this improvement in supply and the decline in mortgage rates, affordability remains a challenge for many potential homebuyers, especially in high-demand areas. Some sellers have begun reducing prices to attract buyers, with one in four sellers cutting their prices in June, the highest rate for any June in the past six years, according to Redfin data.
Looking Ahead
As inventory increases and mortgage rates decline further, experts are optimistic that housing affordability will continue to improve, though at a slow pace. The Federal Reserve is expected to cut interest rates in the latter half of 2024, which may provide further relief to homebuyers. However, for many, the affordability challenges will persist as the market remains far from its pre-pandemic conditions.
For potential buyers, staying within budget remains critical. “Just because mortgage rates declined does not mean it’s time to overstretch your budget,” emphasized Yun, advising homebuyers to make prudent decisions as conditions continue to evolve.