If you’re looking for a new home right now, you’re probably feeling the pinch of high housing prices. For someone making the median income in the U.S., homes are currently just out of reach financially. 1
So, when will homes become more affordable for the average American homebuyer?
It isn’t easy to determine. Different economic influences play a role, and affordability varies widely depending on where you live. But it’s smart to keep a pulse on housing market conditions, and when the time comes for you to jump on your dream home, choosing a lender that cares about your goals and long-term success can save you money, time and stress.
For quick insight into how much you can afford, check out our Affordability Calculator!
How Affordable Are Homes Now?
The reality is… it’s a stretch for the average American to afford the average American home.
Several regularly updated measures of housing affordability, such as the index modeled by National Association of Realtors® and the Federal Reserve Bank of Atlanta®’s Home Ownership Affordability Monitor, find that the median income in the U.S. can’t quite cover the monthly cost of a median-priced home without being considered “cost burdened.”2
One major reason is that there simply aren’t enough homes in the U.S. right now for everyone who wants one, according to a recently released analysis by Zillow®.3 This housing shortage has been growing for years, and first-time homebuyers and those with lower incomes are impacted the most by a lack of affordable housing.4
Even for those who have saved up enough for a down payment, current mortgage rates can seem discouraging. As of August 8, 2024, interest on a 30-year fixed rate mortgage sat at 6.47 percent. When rates breached 7 percent in 2023, it was the highest they’d been in 20 years.5
Here’s your bright side… slowing home sales mean that more resale inventory has hit the market, which has slowed the rate of home price growth.6 Still, if the current housing market is daunting for you as a homebuyer, you’re not alone. Special financing solutions have even been designed in response to these factors so that more buyers can access the market.
What to Expect in the 2024 Housing Market
For affordability to improve, more homes need to become available for sale.
Mortgage rates are curbing the number of existing homes entering the market, because homeowners locked in at a lower mortgage rate aren’t eager to sign on to a higher one.6
Mortgage rates probably won’t come down until the Federal Reserve Board votes to drop the federal funds rate, which is the interest range that commercial banks use to lend to each other. The board ramped up the rate in 2022 in an attempt to curb runaway inflation.7 Fast forward to August 2024, and inflation is down to a moderate 2.9 percent.8 However, the Fed has signaled they won’t lower the federal funds rate until inflation falls to their target of 2 percent.9 Investors expect that the Fed could lower rates in September of this year.10
Newly built homes aren’t high in supply, either, as new home construction is muted, per June data from the U.S. Census Bureau.11 Builder confidence has been dragged down by, you guessed it, current mortgage rates.12 But again, there’s a silver lining: a quarter of builders brought down their prices in May.6
Ultimately, a lot is riding on the federal funds rate. Once the Fed lowers it—potentially this September, as expected by the market—a chain reaction could take place:10
1. First, mortgage rates would fall.
2. Then there’s a good chance many buyers would jump into the market, driving up housing prices.
3. This might encourage builders and developers to ramp up home construction, tempering housing prices.
Bear in mind that the above scenario doesn’t account for other factors like government policy and employment.
Mortgage Options for First-Time Homebuyers in 2024
Your decision to buy a home should be based on your unique situation more than the fluctuations of the housing market. If you feel you’re ready to be a homeowner or to move homes, homeownership is far from impossible. At Newrez, we specialize in making thousands of Americans like you homeowners, every day. Here are some tips from mortgage experts:
· Figure out how much you can afford. Calculate how much of your budget you can put toward a monthly mortgage payment. Have a little something saved for a down payment? Be sure to get pre-approved to boost your buying power.*
· Get clear on your homebuying priorities. Do you need to reside in a certain neighborhood, or can you broaden your horizons? Does your family need a lot of square footage, or is a smaller home on the table? Know where you can compromise, and what matters most.
· Be proactive. If you’d love to live in a certain area, don’t let national housing market news stop you from contacting a real estate agent to get a feel for inventory in that community. Benefit from local real estate expertise through our partnerships.
· Stay positive. Purchasing a home is one of the biggest financial decisions of your life. Don’t rush into a purchase that doesn’t fit your lifestyle because you’re worried you might lose out. Work with a great real estate agent, stay informed, and find a home—and a loan—that’s just right for you.
The National Association of Realtors® is a registered trademark of the National Association of Realtors. Federal Reserve Bank of Atlanta® is a registered trademark of the Federal Reserve Bank of Atlanta. Zillow® is a registered trademark of MFTB Holdco, Inc. None of the above-mentioned companies are affiliated with Newrez LLC.
*A pre-approval does not signify that all underwriting requirements have been met. Actual terms, including interest rate, are subject to change without prior notice and may vary based on eligibility criteria. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Please contact Newrez for additional details.
Sources:
1 REL202405A.xls (nar.realtor)
2 Home Ownership Affordability Monitor - Federal Reserve Bank of Atlanta (atlantafed.org)
3 The U.S. is now short 4.5 million homes as the housing deficit grows - Jun 18, 2024 (mediaroom.com)
4 Addressing America's Affordable Housing Crisis | Housing Matters (urban.org)
5 Mortgage rates are at a record high. Here's what that means for home buying : NPR
6 Housing Market Predictions For 2024: When Will Home Prices Be Affordable Again? – Forbes Advisor
7 Federal Funds Rate History 1990 to 2023 – Forbes Advisor
8 CPI Home : U.S. Bureau of Labor Statistics (bls.gov)
9 The Fed - Why does the Federal Reserve aim for inflation of 2 percent over the longer run?
10 Only One Interest Rate Cut Expected By September—As Emergency Cut Potential Evaporates (msn.com)
11 New Residential Construction Press Release (census.gov)
12 NAHB/Wells Fargo Housing Market Index (HMI) | NAHB
Housing Costs a Big Burden on Renters in Largest U.S. Counties (census.gov)
