Home-price growth cools to 12-month low as mortgage rates tumble
Affordability conditions in the U.S. housing market are gradually improving, thanks to the one-two punch of falling mortgage rates and cooling house-price growth.
According to data from the Intercontinental Exchange (ICE), nationwide housing prices grew at an annual rate of 3.6% in July, marking the smallest gain in 12 months. Prices rose by just 0.2% from June.
The slowing growth was attributed to rising inventory levels and soft demand for housing.
According to ICE’s data, new buyers are saving $145 per month in interest charges compared to three months ago.
“Recent easing in mortgage rates brought some much-sought relief to prospective homebuyers,” said Andy Walden, ICE’s vice president of research and analysis.
“Along with a general cooling in home price growth, rates falling below 6.5% made August the most affordable month for housing since February,” Walden explained.
While affordability conditions are improving, Walden said it still takes a much higher median income to afford an average home than at any point over the last 30 years. For homebuyers, this means “record high down payments and credit scores” to qualify.
For these reasons, many prospective homebuyers remain sidelined until affordability conditions become more favorable.
Buyers remain patient as inventories creep higher
According to data from Realtor.com, new home listings in September were 6.6% higher than a year earlier. The number of listings has grown for 45 consecutive weeks on a year-over-year basis.
Additionally, homes were on the market for six days longer compared to a year earlier. This suggests that “buyers are potentially holding out for lower rates this fall,” wrote Jiayi Xu, an economist with Realtor.com.
Data from Freddie Mac shows that average 30-year mortgage rates fell to 6.09% in the week ending Sept. 19—the lowest in 19 months. Rates have tumbled by 170 basis points from their peak in November 2023.
Although mortgage rates are expected to fall even further over the next year, it’s not entirely clear how much real savings buyers will accrue.
Despite rising inventories, home prices are still creeping higher.
According to the latest estimates from Goldman Sachs, home prices are forecast to grow 4.5% this year and 4.4% in 2025. Both figures were higher than the investment bank’s previous forecasts in April.
In the meantime, households are spending a near-record amount of income just to afford a home at today’s prices.
Analyzing data from the Atlanta Federal Reserve Bank, strategist Charlie Bilello showed that in 2024, the typical American household will need to spend 43.8% of their income to afford an average home.
This is higher than the peak of the housing bubble that preceded the 2008 financial crisis.
As Creditnews reported, housing inflation continues to grow at double the rate of headline inflation. August marked the 29th consecutive month that shelter costs rose by 5% year over year.
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