Find out how these trends may shape the housing market going into 2025
August brought some much-needed relief for buyers, as higher incomes and slightly lower mortgage rates helped boost affordability, according to First American. Despite the rising prices of homes, these changes helped offset the cost, providing some relief for those looking to buy.
Affordability increased by 4.4% in August, driven by a 3.1% rise in household income and a 0.57 percentage point drop in the 30-year fixed mortgage rate compared to last year, First American's Real House Price Index (RHPI) showed.
The RHPI report showed real house prices dropped 3.4% between July and August 2024, and overall, real house prices were 4.4% lower than they were in August 2023. At the same time, consumer buying power improved significantly, rising 9.3% year over year.
As the Federal Reserve began easing its monetary policies in September with a half-percentage point cut to the federal funds rate, the outlook for mortgage rates and affordability continued to improve.
The Fed signaled that additional cuts are expected, which could drive mortgage rates lower. If mortgage rates fall to 6% by the end of 2024, affordability could improve by 7% year over year, according to the report.
The RHPI, which measures affordability by adjusting house prices for purchasing power (based on income and mortgage rates), showed that the expectation of rate reductions has affected the bond market.
“The expectation of a rate reduction has already influenced the market, putting downward pressure on the 10-year Treasury bond yield and by loose association mortgage rates in recent months,” the report stated. “Now that the Fed has started easing and signaled a more aggressive easing trajectory, mortgage rates are likely to fall further later this year.”
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While the national trend points toward improved affordability, some states and cities experienced year-over-year increases in real house prices. Illinois and New Jersey saw small gains, with increases of 0.8% and 0.6%, respectively. However, many regions saw significant affordability improvements, with Colorado (-12.5%), Oregon (-10.7%), and Hawaii (-8.5%) leading the way in reduced real house prices.
Cities like Buffalo, N.Y. (+3.2%) and Cincinnati (+2.2%) bucked the national trend with increases, while Tampa, Fla. (-14.0%) and Denver (-12.4%) saw the most dramatic improvements in affordability.
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