Economists say three levers improve housing affordability: rising incomes, falling home prices, and falling mortgage rates. Mortgage rates fell from 7.37% in early November to 5.99% in February, improving affordability and resulting in more optimistic homebuying.
Last year, the U.S. housing market cooled off after mortgage rates doubled from 3.5% to 7.3%. But now, analysts see demand returning due to a slight rate drop.
A monthly survey of homebuying sentiment from Fannie Mae showed an increase in January for the third straight month. Mortgage applications to purchase a home, the most current indicator of demand, rose throughout January and the first week of February. It is still lower than the same period a year ago when rates were nearly half what they are now. Still, the recent trend in mortgage rates (from 7.3% to 5.99% and back to 6.8%) has stimulated buyer demand and could result in more optimistic homebuying this spring than initially expected.
An affordability study by The Wells Fargo Housing Opportunity Index shows that the median price of homes sold in the fourth quarter of 2022 was $370,000, down from $380,000 in the third quarter and $390,000 in the second quarter. Wages are also rising against mortgage rates. According to the index, the median income in the U.S. rose to $90,000 in 2022 from $79,900 in 2021, a 13% jump.
Real estate agents also report an earlier-than-usual surge in the spring market, with open houses seeing more foot traffic in the last few weeks. Mortgage rates rose to 6.8% last week, but Bank of America, Morgan Stanley, and Fannie Mae forecast rates will fall below 5.5% later this year. So, affordability conditions could improve, increasing demand and bringing more buyers back into the market.
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On the date of publication, Andy Mukolo did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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