Home affordability hits six-month high as rates drop
August brought a much-needed break for prospective homebuyers, with mortgage rates dipping and home prices cooling, according to the latest ICE Mortgage Monitor Report.
The report revealed that August’s lower rates provided a slight improvement in affordability, even though housing remained a challenge for many.
“Recent easing in mortgage rates brought some much-sought relief to prospective homebuyers,” said Walden. “Along with a general cooling in home price growth, rates falling below 6.5% made August the most affordable month for housing since February.”
Despite the affordability boost, Walden emphasized that homebuyers are still facing record-high down payments and strict credit score requirements.
“When it comes to affordability, as always, context is important: it still takes 10 percentage points more of the median income to buy the average house than it has on average over the last 30 years,” he said. “Our own ICE Market Trends data shows that prospective homebuyers are also facing record high down payments and credit scores among recent purchase mortgages.
“Affordability is still very much a challenge and that is likely to continue for the foreseeable future, but August’s improvement is certainly welcome progress.”
Price cooling continues
Home prices slowed further in July, with annual growth dipping to 3.6%, down from 4.1% in June. When adjusted for seasonality, prices rose by 0.19% during the month, which translates to an annualized growth rate of 2.3%.
The gap between single-family home prices and condominium prices also widened, with single-family home prices up 3.7% compared to a 2.3% rise for condos.
A few markets started to return to their long-term affordability norms. Cities like Birmingham, Alabama; Des Moines, Iowa; and McAllen, Texas, are now back to their historical benchmarks. Other markets, including Cleveland, Memphis, and Baton Rouge, are only slightly off their long-term affordability levels.
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In more than half of the nation’s largest markets, however, affordability remains much more difficult. In California, for instance, buyers still need 20% more of their income to afford a typical home than they have historically.
“Even as affordability challenges persist,” Walden said, “purchase demand perked up on August’s rate drops, hinting at a population of prospective homebuyers poised and ready to act as soon as market movements tip the affordability math in their favor. August’s demand remains muted from earlier this year and last, when interest rates were at comparable levels, but that may well turn out to be a good thing on balance.”
Supply-demand imbalance
Florida experienced some of the steepest price drops in July, with Cape Coral leading the way with a full 1% decline. Other areas, like North Port and Jacksonville, also saw price reductions, indicating that the state’s overheated housing market is starting to cool.
At the same time, inventory shortages continue to drive up prices in parts of the Midwest and Northeast. Cities like Cleveland, Richmond, and Chicago saw the strongest price growth in July, as demand for homes remains high and inventory tight.
“Recent inventory gains come much more from softer demand than from an increased willingness among homeowners to list their homes for sale,” said Walden. “This makes supply – and its follow-on effect on home prices – sensitive to rate changes, making demand worth watching closely.
“Without a meaningful return in new listing volumes, the market is reliant on weak demand to allow inventory to grow, limiting the prospect of stronger sales activity without a corresponding risk of inventory drawdowns.”
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