Interest rates for mortgages decrease for the fourth consecutive week, reaching a level not seen since early May.
The American housing market is bracing for a noticeable change as industry experts predict a shift towards a more buyer-friendly environment in the upcoming months.
The weekly fall in mortgage rates for the fourth time in a row to their lowest since early May is a telltale sign of this transition. According to the latest report by Freddie Mac, the average rate on the benchmark 30-year fixed mortgage has dropped to 6.77%, down from 6.81% the week prior.
But what does this mean for homebuyers?
"Borrowers should feel a sense of relief due to the stability of mortgage rates," says Sam Khater, Freddie Mac's chief economist. "Although recent data shows that home sales remain low, the resulting available inventory offers homebuyers a broader range of options to explore when entering the market."
However, affordability in just three of America's 50 major metropolitan areas is such that households making the median income can purchase a home that won't exceed 30% of their earnings annually. The remaining metro areas require a substantial chunk of income, with nationwide estimates showing that around 44.6% of income is necessary for a household to financially manage a "median-priced" home.
The Changing Landscape
The rush in the housing market seen earlier, fueled by ultra-low mortgage rates, has subsided, and the market is slowly cooling down. The increasing inventory, moderating home price growth, and evolving buyer affordability are major signs of this shift.
America's total listed homes surpassed the 1 million mark for the first time since winter 2019, marking a significant growth of 31.5% year-over-year. Despite this increase, inventory still lags behind typical pre-pandemic levels by about 14.4%, though the gap is shrinking at a faster pace now.
Still, buyer activity appears cautious, with pending home sales declining by 2.5% year-over-year, underscoring the ongoing subdued demand. Home price appreciation has slowed as well, with a 2.7% increase in April compared to the previous year, and Redfin forecasting a possible 1% year-over-year price decline by the end of 2025.
Affordability Challenges Persist
High mortgage rates, which have climbed significantly since 2022, continue to test homebuyer affordability. The earlier mortgage rate lock-in effect, which kept many sellers hesitant to move and tightened supply, is dissipating as higher mortgage rates become the norm. This change is making some buyers more accepting of these rates than they initially were.
However, affordability issues persist in major metropolitan areas, where buyers' borrowing power is limited by high mortgage rates, dampening demand somewhat and causing a buildup of "stale" inventory. It's predicted that this market reset will encourage sellers to adjust their expectations, while allowing buyers to enjoy more choices in the market, gradually leading to a more balanced market by 2027-2028.
[1] MarketWatch
[2] Zillow
[3] Redfin
[4] Zillow
[5] Realtor.com
- The cooling down of the housing market, as indicated by increasing inventory and moderating home price growth, might result in a more favorable environment for mortgage loan buyers in the near future.
- As the norm of high mortgage rates persists, real estate affordability will remain a challenge for many buyers, particularly in major metropolitan areas, and could cause a buildup of stale inventory.
- The ongoing shift in the housing market, mirrored by the slowing down of home price appreciation, might make the economy more conducive for investing in sports, as surplus resources may be directed toward alternative ventures.
