The U.S. housing market is showing signs of improvement for buyers, but affordability remains a significant challenge. According to a recent report by Redfin, buyers now need to earn about $115,000 to afford an average home in the country. This is a 1% decrease from a year ago and the first decline since 2020.
The drop in income required to afford a home is due to lower mortgage rates. As of September 19, the average 30-year fixed-rate mortgage was at 6.09%, down from 6.20% the week before and a peak of 7.22% on May 2. The median mortgage payment was $2,534 during the four weeks ending on September 15, a 2.7% decrease from the previous year.
Despite these improvements, the typical household earns about 27% less than what is needed to afford a home, with an average income of around $84,000 a year. Home prices are also still rising, with the median asking price for newly listed homes at $398,475, a 5.4% increase from a year ago. Orphe Divounguy, Senior Economist at Zillow, noted that while housing remains unaffordable for many, the current market conditions are somewhat favorable due to lower mortgage rates, increased inventory, and reduced buyer competition.
Housing affordability remains a challenge
However, he cautioned that mortgage rates are likely to fluctuate based on the overall economy. In addition to lower mortgage rates, the number of homes for sale is increasing, making the market more favorable for buyers.
The National Association of Realtors reported that there were 1,350,000 homes for sale by the end of August, a 0.7% increase from the previous month and a 22.7% rise compared to August 2023. Robert Dietz, Chief Economist at the National Association of Home Builders, mentioned that existing home inventory is expected to rise, which could put downward pressure on prices. However, Daryl Fairweather, Chief Economist at Redfin, warned that the housing market is unlikely to become significantly worse over the next 12 months.
She advised that while waiting might result in more listings, it could also increase competition. In conclusion, the fall housing market presents some opportunities for buyers due to lower mortgage rates and increased inventory. However, affordability challenges and high home prices remain significant obstacles.
Prospective buyers will need to carefully consider their options and timing strategies to navigate this evolving market effectively.
