The summer season has brought some good news for potential buyers in the housing market. Recent data indicates that there has been a slight improvement in home affordability, with the median new mortgage payment dropping to $2,167 in June from $2,219 in May. This decrease in the index demonstrates an enhancement in borrower affordability, which can be attributed to various factors such as declining mortgage rates and income growth among homebuyers.
Edward Seiler, the associate vice president of housing economics at the Mortgage Bankers Association (MBA), highlighted the positive trend, noting that improving affordability conditions are enticing some borrowers back into the housing market. Furthermore, Lawrence Yun, the chief economist and senior vice president of research at the National Association of Realtors, expressed optimism about the ongoing improvements in housing affordability, albeit modestly.
One significant factor contributing to the improved affordability for buyers is the slight decrease in mortgage rates observed in June. Yun emphasized that the 30-year fixed rate mortgage fell to 6.78% on July 25 from 7.22% on May 2, providing some relief to buyers. However, Yun also acknowledged that in the bigger picture, monthly mortgage payments have doubled since pre-Covid times.
The decrease in the median loan amount on new applications from $325,000 in May to $320,512 in June also signals a moderation in home-price growth. This moderation, in combination with declining mortgage rates, has created more favorable conditions for buyers in the housing market.
While the housing market has not completely shifted in favor of buyers, experts suggest that the increased supply and declining rates are moving the market in a more buyer-friendly direction. Chen Zhao, the economic research lead at Redfin, emphasized that the market is tilting more towards buyers, creating a more balanced environment.
Orphe Divounguy, a senior economist at Zillow, echoed this sentiment, stating that conditions are gradually moving towards a more neutral market. As total housing inventory increased by 3.1% from May and 23.4% from a year ago, there are now more options available for buyers. This increase in inventory has eased competition, particularly in southern markets, where most major cities are either neutral or buyer-friendly.
While improved affordability and increased supply are positive developments for buyers, there are still challenges that need to be addressed. High insurance costs and regional disparities in inventory increases create obstacles for buyers in some areas. Sellers are also adapting to the changing market conditions by cutting prices to attract buyers.
According to data from Redfin, about one in five homes for sale had a price cut in June, the highest level on record. Home builders have also responded to market dynamics by reducing prices to boost sales. Despite these adjustments, Lawrence Yun emphasized the importance of buyers staying within budget to make informed decisions in the current market environment.
The recent improvements in home affordability, driven by factors such as declining mortgage rates and increased inventory, are providing opportunities for buyers in the housing market. While challenges persist, particularly in certain regions, the overall trend towards a more balanced market is encouraging for those looking to purchase a home. By staying informed and budget-conscious, buyers can navigate the evolving market dynamics and make sound investment decisions.