Housing Affordability Improves, But Purchase Mortgages May be Slow to Rebound
Written By: Joel Palmer, Op-Ed Writer
Several reports released in the past week may give mortgage underwriters and processors a reason to feel more optimistic about the possibility of more potential borrowers in the near future.
The bottom line in recent data is that buying a home is slowly becoming more affordable due to a combination of lower mortgage rates and slower growth in home values. Still, affordability remains a challenge to many potential buyers, compared with recent years.
Intercontinental Exchange, Inc., a global provider of technology and data, said in its September 2024 ICE Mortgage Monitor Report, that August’s mortgage interest rate declines brought home affordability to its best point in six months.
Even so, said Andy Walden, ICE Vice President of Research and Analysis, the relief brought on by lower mortgage rates is somewhat muted by trends showing that buyers still face record high down payment 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,” said Walden. “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.”
One positive that ICE noted in its report is increased activity in the previously dormant refinance market.
ICE said that the number of “highly qualified” refi candidates more than doubled from just a few weeks earlier. As of Aug. 22, 2.5 million borrowers were in the money for a refinance, of which 900,000 were highly qualified – meaning, they could save at least 75 bps through a refinance, had 720+ credit scores and held at least 20 percent. equity in their homes.
ICE reported that refinance related rate locks reached their highest levels in more than two years, a nearly 150 percent rise from two weeks prior.
The decline in rates and an overall drop in monthly house payments is not leading to an increase in home sales, however, as Redfin reported last week.
The real estate company reported that the median U.S. monthly housing payment fell to $2,534 during the four weeks ending September 1, the lowest level since January and down nearly $300 from April's all-time high.
But, the company added, declining housing payments have yet to improve home sales. Pending homes sales fell 8.4 percent year over year, the biggest decline in nearly a year. Some would-be homebuyers are on the sidelines because they’re still priced out of the market, and are waiting for mortgage rates to fall further, Redfin said.
Redfin said that may not happen if the mortgage market has already priced in future interest-rate cuts expected from the Federal Reserve through 2025. ICE added that the current market leaves room for the Fed to continue lowering rates, which could bring mortgage rates down a little more in the next year.
“The market today is in a good position from the perspective of the Fed and its mission,” Walden said. “Slower home growth is a positive sign in the Fed’s fight against inflation and increased – but still mild – demand is good for the market and Fed alike.”
Fannie Mae reported earlier this month that it expects a deceleration in home price growth. Following growth of 6 percent in values in 2023, its panel of housing experts is forecasting annual national home price growth of 4.7 percent in 2024 and 3.1 percent in 2025.
"Despite robust home value growth in the first half of 2024, our panelists anticipate a slowdown in price appreciation for the remainder of the year and beyond,” said Terry Loebs, founder of Pulsenomics, and one of the panelists surveyed by Fannie Mae economists. “While lower interest rates could incentivize some homeowners to sell, the deep-rooted housing supply and affordability crises will likely persist, even with a more accommodative monetary policy."
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.
