Purchasing a home isn't getting any easier for scores of hopeful buyers
Housing affordability is plunging across the US, freezing out a growing number of would-be buyers thanks to a combination of eyewatering home prices and mortgages rates that have surged during the past two years.
A sobering analysis by real estate group Redfin at the end of last year showed that just 15.5% of available homes in the US would be affordable for a typical household, a shocking drop of 21% compared with 2022.
Those climbing mortgage rates were a key reason affordability shot out of reach for scores of borrowers, although a big uptick in home prices during the COVID-19 pandemic and a prolonged lack of affordable supply also contributed to hopeful buyers’ continuing woes.
For Americans who remain determined to enter the housing market despite those steep hurdles, taking an education-focused approach – and seeking counsel from market and industry experts – are some of the best ways to navigate the current challenging climate, according to a prominent mortgage executive.
Nick Taylor (pictured top), VP, Head of Better+ at Better.com, told Mortgage Professional America that buyers were likely to see little change on the price front for the foreseeable future. “There’s going to be marginal gains, decreases in sales prices over the next 12 to 24 months. So we’re going to stay in this environment, unfortunately, for a little while,” he said.
“I think what buyers can do to hedge against some of these issues is just be informed: really be informed what leverage they have, whether that be through a state-level program or getting a better mortgage product or negotiating on sale price and trying to find a better opportunity to get the home at the price that they want.”
Despite inventory challenges and scarce supply, new listings in the US housing market rose 36.7% in June, driven by Florida and Texas. Fannie Mae's chief economist, Doug Duncan, notes that overall supply remains below pre-pandemic levels.https://t.co/xAzNPOwetr
— Mortgage Professional America Magazine (@MPAMagazineUS) July 17, 2024
Where opportunities and challenges lie in the current market
Borrowers’ choice of mortgage professional and lender to help make their homebuying aspirations a reality is another consideration that’s more essential than ever, Taylor said, with the right expert and guiding voice potentially making all the difference.
That truth means there’s plenty of opportunity out there for borrowers, brokers and lenders alike. “What we do know is that there’s still going to be probably 4.3 million people who sell their home in 2024, and we know that the benefit of working with a great agent and a great lender is that they might help unlock cost savings opportunities because that property sits on the market for 40, 50, 60 days,” Taylor said. “A lender can find a down payment program. They can help lower those costs to enter the property.”
The Federal Reserve Bank of Atlanta’s national home ownership affordability monitor index, which gauges housing affordability across the country, reveals a sharp decline in homebuying prospects since the middle of 2020, bottoming out in October of last year but with little improvement since.
Does that point to a dysfunctional US housing market? “It depends on how you measure the health of a market,” Taylor said. “If you measure the health of a market based on affordability, then yes, this is not a healthy environment.
“So we do know that there are certainly challenging times currently and ahead on an affordability standpoint. But that doesn’t mean that the market has completely fallen out like we saw during the Great Recession.”
Rates set to fall – but further price growth expected across the US
A sliver of good news for prospective homebuyers is the likelihood that rates will begin to tick lower in the second half of the year. Traders are currently pricing in a 100% chance that the Federal Reserve will cut its key rate in September, a decision that would probably see some downward movement in mortgage rates.
Last week, mortgage rates drifted below the 7% mark, falling to 6.87% according to the Mortgage Bankers Association’s (MBA’s) latest data. Fannie Mae currently expects rates to hit 6.7% by the end of this year, with further dips potentially on the way throughout 2025.
However, home prices across the country are still on the rise. While national price growth slowed to a pace of 4.9% in May, that marked a 148th month in a row of higher year-over-year prices, according to CoreLogic – and even though a further cooldown is in the cards, prices are still expected to be growing by 3% annually by next May.
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