Simone Del Rosario: Mortgage rates hit their lowest level in more than a year, which is a little like putting the cart before the horse but we know the horse is coming.
That horse is the Federal Reserve cutting interest rates. What will all this mean for housing affordability? We’re going to tell you the story in five charts.
Mortgage rates are falling in anticipation the Fed will lower the fed funds rate, the interest rate banks are charged for overnight lending. It basically acts like a benchmark for all other consumer borrowing.
When the Fed went on this rate hike campaign to make borrowing more expensive and slow down inflation, mortgage rates jacked up and the dream of buying a home quickly got out of reach for many Americans.
We’re coming off the cliff now but don’t expect those historically low interest rates from pandemic past.
And when you really zoom out, mortgage rates aren’t that high compared to decades past. Before 2000, these rates would have been a steal. Today, they’re uncomfortably high thanks to another factor: Home prices.
If only we’d all had the foresight and means to buy a home when it felt like the world was coming to an end the spring of 2020.
After setting record highs in 2022, home prices are going back down, but “affordable?” It depends on how short your memory is.
The median sales price is nearly $100,000 more than 5 years ago, and it’s double what it was 15 years ago, during the depths of the Great Recession.
Since there are no credible signs the housing market is about to crash, lowering interest rates and lowering prices are a good enough sign for more movement in the housing market, and we’re seeing that with rising inventory.
The active listings are back up to levels not seen since early COVID days. More houses on the market means more competition on the selling side, which could be the first win for buyers in a while. But experts don’t expect prices to decrease all that much, because inventory is still so much lower than what’s needed.
That brings us to housing affordability, and whether the typical family earns enough to qualify for a mortgage on a typical loan. For most of the past year, that answer has been no.
The National Association of Realtors measures this using price, income and mortgage data, assuming a 20% down payment. Anything above 100 means the typical family can do it! Everything below 100 means they won’t qualify.
The Midwest is the only place in the country today where the typical family can afford the typical home. In the Midwest, the qualifying income is around $84,000. In the West, it’s nearly double.
But the secret is getting out! Realtor.com says Columbus, Ohio, is the most popular housing market in the country this year. And there’s not a single housing market on this list west of the Mississippi.
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