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Home affordability has improved slightly for buyers this summer, according to a recent report.
The average new mortgage payment was $2,167 in June, down 2.4% from $2,219 in May; according in new figures from the Association of Mortgage Bankers. The index measures how new monthly mortgage payments change over time, relative to income.
A decrease in the index indicates that borrowers’ affordability has improved, which can happen when loan application amounts and mortgage interest rates decrease or homebuyer earnings increase.
“Homebuyer affordability conditions improved for the second month in a row as falling mortgage rates continue to boost purchasing power and draw some borrowers back into the housing market,” Edward Seiler, MBA’s vice president for economics, wrote in the release. of housing.
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Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, also sees promising indicators for homebuyers.
“Housing affordability is improving ever so modestly, but it’s moving in the right direction,” he said.
“The bigger picture” shows that payouts are still high
The median loan amount for new applications fell to $320,512 in June from $325,000 in May, a sign that home price growth is also moderating, according to MBA data provided to CNBC.
A slight decrease in mortgage rates in June certainly helped buyers, Yun said.
The 30-year fixed-rate mortgage fell to 6.78 percent on July 25, from 7.22 percent on May 2, according to data from Freddie Mac via the Fed.
But it’s a “very small improvement” in context, he said – the typical monthly mortgage payment has effectively doubled since the pre-Covid years. Before Covid, a mortgage payment of $1,000 was the norm. today it’s more than $2,000, he said.
“In the bigger picture, this is a significant increase on pre-Covid conditions, however on a month-to-month basis, it is a slight improvement,” Yun said.
More sellers, less competition for buyers
Investors believe the Federal Reserve could cut interest rates about three times in the second half of the year, which would “further improve housing affordability,” Yun added.
While the housing market is not yet a buyer’s market, more supply and falling interest rates are indeed creating favorable conditions for buyers, experts say.
Housing affordability is improving ever so modestly, but it’s moving in the right direction.
Lawrence Yun
chief economist and senior vice president of research for the National Association of Realtors
“The market is definitely leaning more toward buyers,” said Chen Zhao, head of economic research at Redfin, an online real estate brokerage, who said the market is balancing out.
While there’s still an affordability challenge across the board, conditions are “going toward a more neutral market,” says Orphe Divounguy, senior economist at Zillow.
In some areas, buyers are becoming more selective as more listings appear. Total housing inventory recorded at the end of June was 1.32 million units, up 3.1% from May and 23.4% from a year ago, according in NAR. Unsold inventory is on 4.1 months supply, up from 3.7 months in May and 3.1 months a year ago.
“It’s very good news for the buyer side,” Yun said, since you’re less likely to get into a bidding war.
Competition is declining fastest in the South, where all major Southern markets except Dallas and Raleigh are either neutral or shopper-friendly, according in the June 2024 Zillow Housing Market Report.
“With more inventory, that certainly means buyers have more options,” said Selma Hepp, chief economist at CoreLogic. “But that’s very peripheral. And those with the most increases in stocks are struggling with other issues,” such as high insurance costs.
Some sellers are lowering prices to attract buyers, Divounguy said.
“Sellers need to do a little bit more to attract buyers,” he said. “We see one in four sellers are lowering their prices — the most for any June in the last six years — to try to sway buyers.”
About one in five, or 19.8%, of homes for sale in June had a price cut, the highest level of any June on record, according to Redfin. That’s up 14.4% from a year ago.
“Sellers are always trying to maximize their prices, but sellers should be aware that there is more competition,” Yun said.
Homebuilders are also trying to attract buyers: About 31% of builders are cutting prices to boost home sales, up from 29% in June and 25% in May. according in a July 2024 survey by the National Association of Home Builders.
Still, “the number one thing” for buyers is to “stay within budget,” Yun said. “Just because mortgage rates have come down doesn’t mean it’s time to overstretch their budget.”
