Volatile Mortgage Rates Stress Buyers Over Affordability – RISMedia

While affordability issues aren’t a new phenomenon in the housing market, recent mortgage volatility has impacted a growing number of American buyers, many of whom remain on the sidelines. According to a recent market report from Zillow, the result is another month of declining home values.

The report said the value of a typical home in the United States fell 0.3% from July to August, to $356,054, as measured by the Zillow Crude Home Value Index. This is the largest monthly decline since 2011 and the second consecutive month of falling prices.

Home values ​​fell slightly in July, down 0.1%. While both declines are modest at best — the value of typical homes is still up 14.1% year-on-year — they are another example of shifting tides in the housing market, which arguably has seen its two best years in history.

Zillow attributed the declines in value to the recent spike in mortgage rates, which approached 6% in June. Coupled with the “historic rise in house prices” during the pandemic, the surge in mortgage rates pushed the monthly mortgage payment for a typical newly purchased home from $897 in August 2019 to $1,643, an increase of 83 %.

Skyrocketing costs have hampered competition in the market, according to the report, which is evident in the increased time the house remained listed in August. The typical time before an ad is put on hold is 16 days, three days longer than in July.

Highlights:

  • The typical value of a home fell 0.3% from July, the biggest monthly drop since 2011.
  • Values ​​fell the most month over month in San Francisco (-3.4%), Los Angeles (-3.4%), Sacramento (-3.2%) and Salt Lake City (-2 .6%).
  • Home values ​​rose from July to August in 12 of the 50 largest U.S. markets, led by Birmingham (0.9%), Indianapolis (0.5%), Cincinnati (0.4%) and Louisville (0.2%). %).
  • Competition for homes is strongest in affordable metros and weakens in expensive markets.
  • The lack of competition among buyers increased inventory (up 1% from July) and time to market.
  • About 28% of listings nationwide received a price reduction, which is slightly higher than the rate of 22% in August 2019.
  • The share of ads with a price reduction is highest in Salt Lake City, Phoenix, Las Vegas and Austin.
  • The lowest price reduction rates in the market are Milwaukee, New York, Hartford and Boston.
  • Rent growth continued to slow in August, with a typical rent of $2,090 now 12.3% higher than last August, down from February’s high of 17.2% annual growth.
  • Annual rent growth is strongest in Miami (21.9%), New York (17.9%), Orlando (17.5%) and San Diego (17.1%).

Take-out:

By now, you’ve heard that the housing market has seen its fair share of change since the summer of 2021, which saw seismic house price growth, while mortgage rates were still near record lows.

As the market moved away from the feverish behavior of this summer, those days have passed.

While the signs of lower home prices are there, Zillow’s report highlights a deep-seated problem that isn’t likely to go away: Buyers are still grappling with the expense of homeownership.

Even with a modest decline, soaring mortgage rates have added another challenge to the growing pressure on affordability by showing what Zillow experts called “astronomical growth” in spending by new homeowners over the past three years. .

“Substantial day-to-day and week-to-week rate movements mean that many potential buyers may qualify for a loan one week but not the next, or vice versa,” he said. Zillow chief economist Skylar Olsen in a statement. “Even buyers able to afford a home at current rates could feel frozen, waiting for mortgage rates to fall dramatically again, as they did from late June to mid-July, when rates fell 50 basis points in just two weeks.”

Olsen also said that “as the share of median household income needed to pay monthly mortgage costs now exceeds the 30% level considered a financial burden, the uncertainty itself could hold back a large population of buyers who could otherwise afford to move”. advance with a loan. This issue is likely to persist until markets stabilize and return to some semblance of normalcy.

To see the full report, Click here.

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