Signs of improvement in the housing market

Recent reports suggest that home affordability has improved slightly for homebuyers this summer.

The median new mortgage payment in June was $2,167, down 2.4 percent from $2,219 in May, according to the latest data from the Mortgage Bankers Association. The index measures how new monthly mortgage payments change over time compared to income.

A decrease in the index indicates an improvement in borrowers’ ability to repay, which can occur when loan application amounts or mortgage interest rates decrease or homebuyer incomes increase.

“Homebuyers’ affordability improved for the second consecutive month as lower mortgage rates continue to boost purchasing power, luring some borrowers back into the housing market,” Edward Thaler, MBA vice dean for housing economics, said in a statement.

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Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, also sees encouraging indicators for homebuyers.

“Home affordability has improved slightly, but it’s heading in the right direction,” he said.

The median loan amount for new applications fell to $320,512 in June from $325,000 in May, according to MBA data provided to CNBC, suggesting home price growth is also slowing.

Yoon said the slight decline in mortgage rates in June undoubtedly worked in buyers’ favor.

According to data from Freddie Mac via the Federal Reserve, the 30-year fixed-rate mortgage fell from 7.22% on May 2 to 6.78% on July 25.

But it’s a “very small improvement” in the context of the situation, he said. Typical monthly mortgage payments are effectively double what they were in the years before the pandemic. A $1,000 mortgage payment was the norm before the pandemic; now it’s more than $2,000, he said.

“Overall, it’s a significant increase compared to pre-COVID levels, but on a month-to-month basis it’s only a slight improvement,” Yoon said.

Investors believe the Federal Reserve may cut interest rates about three times later this year, which would “further improve home affordability,” Yun added.

While the housing market isn’t yet a buyer’s market, experts say increasing supply and falling interest rates are certainly creating favorable conditions for buyers.

“The market is definitely tilting towards buyers,” said Chen Chao, head of economic research at online real estate brokerage Redfin, who said the market was regaining balance.

While home prices remain elevated across the board, the situation is “moving toward a more neutral market,” said Orphée Divongay, senior economist at Zillow.

In some areas, as listings increase, buyers are becoming more picky. According to the National Association of Realtors, total listed home inventory at the end of June was 1.32 million, up 3.1% from May and 23.4% from a year ago. Unsold inventory stood at 4.1 months, up from 3.7 months in May and 3.1 months a year ago.

“This is very good news for buyers,” Yoon said, as they are less likely to get caught up in a bidding war.

According to the June 2024 Zillow Housing Market Report, competition is easing most rapidly in the South, with all major Southern markets except Dallas and Raleigh either neutral or buyer-friendly.

“More inventory certainly gives buyers more options,” said Thelma Hepp, chief economist at CoreLogic, “but it’s a regional thing. The areas that have seen the most inventory growth are also struggling with other issues, like rising insurance costs.”

Some sellers are lowering prices to attract buyers, Divongie said.

“Sellers are having to work a little harder to attract buyers,” he said. “A quarter of sellers are lowering their prices to try to sway buyers, the most for any June in the last six years.”

Nearly one in five homes for sale in June, or 19.8%, had their prices reduced, the highest level ever for the month, according to Redfin. That’s up from 14.4% a year ago.

“Sellers are always looking to maximise prices, but sellers should keep in mind that competition is increasing,” Yoon said.

Home builders are also trying to attract buyers: A July 2024 survey by the National Association of Home Builders found that 31% of home builders have lowered home prices to boost sales, up from 29% in June and 25% in May.

But the “most important thing” for buyers is to “stay within your budget,” Yoon said. “Just because mortgage rates have fallen doesn’t mean it’s the time to overtax your budget.”