Title: US Mortgage Rates Dip, but Home Affordability Hits Record Low
Subtitle: Rising mortgage costs and constrained housing inventory continue to trouble homebuyers
In a welcome development for US homebuyers, mortgage rates witnessed a decline this week after five consecutive weeks of increases. However, they still remain above 7%, primarily due to concerns over inflation. The 30-year fixed-rate mortgage averaged 7.18% in the week ending August 31, down from 7.23% the previous week, according to recent data.
This persistently high mortgage rate, coupled with soaring home prices, has led to a significant drop in home affordability. In fact, home affordability has now reached its lowest level in nearly four decades. The combination of rising mortgage costs and home prices has become a daunting challenge for potential buyers.
Adding to the struggle, the current low inventory of homes on the market has also contributed to higher prices and fewer sales compared to last year. As a result, it has become increasingly difficult for buyers to find suitable homes at affordable prices.
To exacerbate matters, inflation remains elevated and continues to surpass the Federal Reserve’s target of 2%. The recently released core Personal Consumption Expenditures (PCE) price index for July revealed that year-over-year inflation stood at 3.3%. Although the moderate monthly gain of 0.2% aligns more closely with the Fed’s desired level, borrowers can still expect elevated costs in the near term due to persistent inflation.
These high mortgage rates are largely influenced by the actions of the Federal Reserve, which is responsible for determining interest rate hikes. With three upcoming meetings this year, the Fed’s next steps regarding interest rates will play a decisive role in shaping mortgage rates.
Additionally, signs indicate a potential cooling in the labor market, as job openings in the US dropped in July. This combination of high mortgage rates and constrained housing inventory is creating a challenging environment for homebuyers, who are finding it increasingly difficult to fulfill their homeownership dreams.
Despite these challenging market conditions, there has been a recent upward trend in mortgage applications for both home purchases and refinances. This upturn in demand marks the first increase in five weeks, providing a glimmer of hope for those aspiring to enter the housing market.
The Mortgage Bankers Association has expressed optimism, anticipating that rates will gradually decline in the coming months. Such a decline could slightly improve affordability, offering some respite to eager homebuyers.
In conclusion, while mortgage rates have experienced a slight dip, home affordability remains at record lows due to elevated rates and soaring prices. As the Federal Reserve’s decisions regarding interest rates loom, potential homebuyers continue to face a formidable challenge in navigating the complex and demanding US housing market.