Housing affordability is ‘moving in the right direction,’ economist says. Here’s what to know

Home affordability has slightly improved for buyers this summer, according to a recent report. 

The median new mortgage payment was $2,167 in June, a 2.4% decline from $2,219 in May, according to new data from the Mortgage Bankers Association. The index measures how new monthly mortgage payments change over time, relative to income. 

A decrease in the index shows borrower affordability improved, which can happen when loan application amounts and mortgage rates decrease, or homebuyer earnings grow.

“Homebuyer affordability conditions improved for the second straight month as declining mortgage rates continue to increase purchasing power and is enticing some borrowers back into the housing market,” Edward Seiler, MBA’s associate vice president of housing economics, wrote in the release.

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Lawrence Yun, chief economist and senior vice president of research of the National Association of Realtors, also sees promising indicators for homebuyers.

“Housing affordability is improving ever so modestly, but it is moving in the right direction,” he said.

The median loan amount on new applications fell to $320,512 in June, from $325,000 in May, a sign that home-price growth is moderating as well, according to MBA data provided to CNBC.

A slight decrease in mortgage rates in the month of June definitely helped buyers, said Yun.

The 30-year fixed rate mortgage declined to 6.78% on July 25, down from 7.22% on May 2, according to Freddie Mac data via the Fed.

But it’s a “very small improvement” in context, he said — the typical monthly mortgage payment has essentially doubled from pre-Covid years. Before Covid, a $1,000 mortgage payment was the norm; today it’s above $2,000, he said.

“In the bigger picture, it is a substantial increase on pre-Covid conditions, yet on a month-to-month basis, it is a slight improvement,” Yun said.

Investors think the Federal Reserve could cut interest rates about three times in the latter half of the year, which would “further improve housing affordability,” Yun added,

While the housing market isn’t yet a buyer’s market, more supply and declining rates indeed create favorable conditions for buyers, according to experts.

“The market is certainly tilting more towards buyers,” said Chen Zhao, the economic research lead at Redfin, an online real estate brokerage firm, who said the market is balancing itself.

While there’s still an affordability challenge broadly, conditions are “moving towards a more neutral market,” Orphe Divounguy, a senior economist at Zillow.

In some areas, buyers are getting pickier as more listings pop up. Total housing inventory registered at the end of June was 1.32 million units, up 3.1% from May and 23.4% from a year ago, according to NAR. Unsold inventory is at a 4.1-month supply, up from 3.7 months in May and 3.1 months a year ago.

“It’s very good news for the buyer side,” said Yun, as you’re less likely to get caught up in a bidding war.

Competition is easing fastest in the South, where all major southern markets except Dallas and Raleigh are either neutral or buyer-friendly, according to the June 2024 Zillow Housing Market Report.

“With more inventory, that does certainly mean that buyers have more options,” said Selma Hepp, chief economist at CoreLogic. “But that is very regional. And the ones with the most increases in inventories, they’re struggling with other issues,” like high insurance costs.

Some sellers are cutting prices to attract buyers, said Divounguy.

“Sellers are having to do a little bit more to entice buyers,” he said. “We see one in four sellers are cutting their prices — the most for any June in the last six years — to try to sway buyers.”

About one in five, or 19.8%, of homes for sale in June had a price cut, the highest level of any June on record, according to Redfin. That’s up from 14.4% from a year ago.

“Sellers are always trying to maximize their prices, but the sellers should be mindful that there’s more competition,” Yun said.

Home builders are also trying to attract buyers: About 31% of builders cut prices to increase home sales, up from 29% in June and 25% in May, according to a July 2024 survey by the National Association of Home Builders.

However, “the number one thing” for buyers is to “stay within budget,” Yun said. “Just because mortgage rates declined  does not mean time to overstress their budget.”