Mortgage rates and prices have been moving in a promising direction for the housing market, and could send activity sky-high.
The changes have already improved affordability in markets across the country and set off refinancings, which didn’t seem worthwhile in recent years after the surge in rates post-rising interest rates, Inman reported.
Housing affordability is at a six-month high, according to Intercontinental Exchange’s Andy Walden. Mortgage rates are down 1.5 percentage points from October’s peak and rates are expected to keep falling if the Federal Reserve cuts interest rates, as it has signaled it’ll likely do soon.
Mortgage rates for a 30-year fixed-rate mortgage are hovering around 6.5 percent. That means purchasing the average home requires 34 percent of median income, Walden said, 10 percentage points above historical averages.
But each reduction in rates by a quarter point brings down mortgage payments on the average home by roughly $60. If rates fall to 5.5 percent, the payment-to-income ratio would drop to 31 percent. That would also boost the number of homeowners “in the money” for a mortgage refinancing from 2.5 million to 7.2 million, ICE Mortgage estimates.
That’s a big “if,” but one that at least feels possible with interest rate cuts looming. Still, Fannie Mae and the Mortgage Bankers Association don’t see the average mortgage rate dropping below 6 percent until next year’s fourth quarter, let alone 5.5 percent.
There’s also good news for consumers on the home price front, as price appreciation slowed to 3.6 percent in July, according to ICE Mortgage.
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Nevertheless, affordability remains challenging in a majority of the nation’s 100 biggest markets, according to ICE Mortgage, as monthly mortgage payments remain 10 percentage points above historical averages. Birmingham, Des Moines, Cleveland and Memphis are among the markets where payment-to-income ratio is closer to historical levels.
Monthly mortgage payments in July averaged $91,600, a record high and a 9 percent jump year-over-year.