Credit Sesame discusses the challenges facing would-be homebuyers in fall 2024.
After a sustained drop, 30-year mortgage rates have risen for four straight weeks. Home prices also continue to rise. It seems that buyers cannot get a break.
Mortgage rates pose challenges for would-be homebuyers again
In late September 2024, it seemed that market conditions were finally cooperating for buyers. 30-year mortgage rates had fallen steadily for five months to 6.08%. That was 1.71% lower than their peak of 7.79% reached at the end of October 2023. That kind of drop in mortgage rates has a huge impact on housing affordability. 6.08% was the lowest 30-year mortgage rate since September 2022.
Seemingly, this created a window for buyers to get into the market at more affordable mortgage rates. Unfortunately, that window slammed shut quickly. In October, 30-year mortgage rates rose for four straight weeks. In total, that pushed rates 0.46% higher.
The unusual dynamic driving prices
It’s not just mortgage rates pricing many would-be buyers out of the market. The average home price in the US has had year-over-year increases for 15 months in a row. The average home price is $404,500 and rising.
What’s unusual about these rising prices is that they come when home sales volume has been falling. Normally, prices rise when the housing market is hot. Instead, prices have gone up while sales have been lackluster. The explanation for this dynamic has been that the inventory of houses available for sale has been very limited. Current homeowners with low rates on their existing mortgages have been reluctant to give up those low rates by selling.
There is hope for people who want to buy a home. Over the past year, the inventory of homes on the market has risen to the equivalent of 4.3 months’ worth of sales volume. A year ago, it was just 3.4 months’ worth. Theoretically, a greater supply should lead to lower home prices – or at least slow the steady price rise.
How much better can you expect conditions to get?
Homebuyers waiting for prices to come down before jumping into the housing market may find the the odds are stacked against them.
The S&P CoreLogic Case-Shiller US National Home Price Index is a measure of changes in housing prices dating back to the late 1980s. Of the 36 full calendar years for which returns of this index are available, home prices have declined in just seven. Five of the seven annual declines resulted from the housing crisis and the Great Recession. These conditions made it difficult for many Americans to make ends meet, let alone qualify for a mortgage.
As long as inflation remains controlled, mortgage rates could come down from their current level. However, since the long-term historical average 30-year mortgage rate of 7.72% is higher than current mortgage rates, the odds are against a return of 3% or 4% mortgages.
What homebuyers can do to improve their prospects
Rather than discourage would-be home buyers, these sobering statistics should help set realistic expectations. Since a dramatic drop in home prices or mortgage rates is unlikely, people hoping to buy a home should focus on doing things they can control to put themselves in a better financial position.
- Keep your rent as low as possible. It’s understandable that people who have been frozen out of the housing market might want to compensate by treating themselves to a nicer apartment or other rental property. However, raising housing expenses in a way that doesn’t create equity does not help build long-term wealth.
- Minimize financial commitments. Maintain as much financial flexibility as possible so you are ready to act when an opportunity to buy a home arises. This means avoiding expensive long-term financial commitments. From car loans to subscriptions, you should look to keep your monthly financial obligations low.
- Work on your credit score. While waiting for a chance to buy a home, do everything you can to get your credit record in great shape. Doing that can qualify you for a better mortgage rate, making a home more affordable.
- Save for a bigger down payment. This should be a by-product of keeping your rent and other financial obligations as low as possible. A bigger down payment reduces the amount you must borrow to buy a home. It could also qualify you for a lower mortgage rate.
- Follow local price trends. Even if you are not ready to buy a house, get in the habit of periodically scanning real estate listings. This helps you know which neighborhoods are pricey and which are more affordable. Also, knowing price trends helps you recognize a bargain.
- Do some test shopping. In addition to following real estate listings, occasionally go to open houses to see what you like and don’t like in a home. Especially if you’re buying a home with a spouse or other partner, seeing some actual properties will give you a better feel for what to look for when the time comes for you to start home shopping for real.
The current landscape may seem daunting for homebuyers, but taking proactive steps today can help you seize opportunities when they arise. By staying informed and prepared, you can navigate these challenging times and make your homeownership dreams a reality.
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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.
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