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According to a recent report, home affordability for buyers improved slightly this summer.
The median mortgage payment was $2,167 in June, down 2.4 percent from $2,219 in May, according to new data from the Mortgage Bankers Association, which measures how monthly mortgage payments change over time relative to income.
A decline in the index indicates that the borrower's ability to pay has improved. This can happen, for example, if the amount of loan applications and mortgage rates decreases or if the income of home buyers increases.
“Home affordability improved for the second month in a row as falling mortgage rates continued to increase purchasing power and lured some borrowers back into the housing market,” Edward Seiler, MBA assistant vice president for housing economics, wrote in the press release.
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Lawrence Yun, chief economist and senior vice president for research at the National Association of Realtors, also sees promising indicators for homebuyers.
“Housing affordability is improving modestly, but it is moving in the right direction,” he said.
“The overall picture” shows that payments are still high
The median loan amount for new applications fell from $325,000 in May to $320,512 in June, a sign that home price growth is also slowing, according to data from MBA told CNBC.
A slight decline in mortgage rates in June definitely helped buyers, Yun said.
The interest rate on a 30-year fixed-rate mortgage fell from 7.22 percent on May 2 to 6.78 percent on July 25, according to data from Freddie Mac via the Fed.
But in context, it's a “very small improvement,” he said – the typical monthly mortgage payment has essentially doubled compared to pre-Covid years. Before Covid, a $1,000 mortgage payment was the norm; today it's over $2,000, he said.
“Overall, it's a significant improvement from pre-Covid conditions, but on a monthly basis, it's a slight improvement,” Yun said.
More sellers, less competition for buyers
Investors expect the Federal Reserve to cut interest rates about three times in the second half of the year, which would “further improve housing affordability,” Yun added.
Although the real estate market is not yet a buyer's market, experts say that the increased supply and falling interest rates are creating favorable conditions for buyers.
Housing affordability is improving slightly, but the trend is moving in the right direction.
Lawrence Yun
Chief Economist and Senior Vice President for Research at the National Association of Realtors
“The market is certainly leaning more toward buyers,” said Chen Zhao, head of economic research at Redfin, an online real estate brokerage, who believes the market is leveling out.
While there is still an overall affordability issue, “conditions are moving toward a more neutral market,” said Orphe Divounguy, a senior economist at Zillow.
In some areas, buyers are becoming more selective as more listings surface. According to NAR, total housing inventory at the end of June was 1.32 million units, up 3.1% from May and 23.4% from a year ago. Unsold housing inventory is 4.1 months' worth, compared to 3.7 months in May and 3.1 months a year ago.
“This is very good news for the buyer side,” Yun said, as it reduces the risk of becoming involved in a bidding war.
Competition is waning fastest in the South, where all major Southern markets except Dallas and Raleigh are either neutral or buyer-friendly, according to the June 2024 Zillow Housing Market Report.
“More inventory obviously means buyers have more options,” says Selma Hepp, chief economist at CoreLogic. “But that's very regional. And the companies with the biggest inventory increases are struggling with other problems,” such as high insurance costs.
Some sellers are lowering their prices to attract buyers, Divounguy said.
“Sellers need to do a little more to attract buyers,” he said. “We're seeing one in four sellers lower their prices – the most in a June in the last six years – to convince buyers.”
According to Redfin, about one-fifth of homes for sale in June (19.8 percent) had their prices reduced, the highest ever recorded for a June, compared to 14.4 percent in the same period last year.
“Sellers always try to maximize their prices, but they should be aware that the competition is greater,” Yun said.
Homebuilders are also trying to attract buyers: About 31% of builders are cutting their prices to boost home sales, up from 29% in June and 25% in May, according to a July 2024 survey by the National Association of Home Builders.
However, for buyers, “the most important thing” is to “stay within budget,” Yun said. “Just because mortgage rates have gone down doesn't mean you should overstretch your budget.”