Declining mortgage rates have boosted housing affordability to its highest level since February, but record-high down payments and lofty home prices are still holding back demand.
Technology and data provider the Intercontinental Exchange (ICE) released its September 2024 ICE Mortgage Monitor Report Tuesday, which showed indications of a slowly-improving market.
“Recent easing in mortgage rates brought some much-sought relief to prospective homebuyers,” ICE Vice President of Research and Analysis Andy Walden said. “Along with a general cooling in home price growth, rates falling below 6.5% made August the most affordable month for housing since February. When it comes to affordability, as always, context is important,” he went on to add. “It still takes 10 percentage points more of the median income to buy the average house than it has on average over the last 30 years. Our own ICE Market Trends data shows that prospective homebuyers are also facing record high down payments and credit scores among recent purchase mortgages. Affordability is still very much a challenge and that is likely to continue for the foreseeable future, but August’s improvement is certainly welcome progress.”
Purchase loan demand experienced two of its best weeks since March this August, but remains noticeably below levels seen in early 2024 and in 2023 when rates were at comparable levels.
The average home is being purchased for approximately $145 less per month in principal and interest payments, as 30-year conforming rates are down 60 bps from three months ago, the report indicated.
July’s ICE Home Price Index showed the annual rate of home price growth slipping to +3.6% from +4.1% in June – the slowest pace in 12 months. While home prices were up .19% from June nationally, they fell and rose at different rates on a regional basis.
Austin joined Florida’s nine largest metros reporting the largest single-month price declines, as rising inventory levels softened home prices across the state.
Cape Coral saw the largest decline, with prices there falling by a full percentage point. This was followed by North Port, which saw a -0.9% single-month decline, along with Jacksonville, Deltona, Tampa, Palm Bay, Lakeland, Orlando and Miami (-0.3% or more).
“Florida is not alone,” Walden pointed out. “Other areas where inventory has returned to or exceeded pre-pandemic norms also saw prices edge lower in July. Places like Austin, San Antonio, Memphis, New Orleans and San Francisco. On the other side of that coin, inventory shortages persist in many parts of the Midwest and Northeast, where prices continue to push higher. Just look at Cleveland, Providence, Richmond and Chicago, which – along with Seattle – made up the top five performing metros in July from a home price growth perspective.”
Three of the nation’s 100 largest markets returned to their respective average affordability levels: Birmingham, Ala.; Des Moines, Iowa; and McAllen, Texas. Cleveland, Toledo, Memphis and Baton Rouge fell within one percentage point of their respective benchmarks.
Affordability is still lacking in more than half of all major markets, however, where the local median income remains at least 10 percentage points less than needed to afford the monthly payment on the average home purchase, when compared to the markets’ long run averages.
Some California markets are seeing payment-to-income ratios more than 20 percentage points higher than averages.
“Even as affordability challenges persist,” Walden said, “purchase demand perked up on August’s rate drops, hinting at a population of prospective homebuyers poised and ready to act as soon as market movements tip the affordability math in their favor. August’s demand remains muted from earlier this year and last, when interest rates were at comparable levels, but that may well turn out to be a good thing on balance.”
The spread between single-family home and condominium prices continued to widen in July, with the former up 3.7% year-over-year compared to +2.3% for the latter.
Overall, the latest ICE Report frames the housing market in a positive direction moving forward, according to Walden.
“Slower home growth is a positive sign in the Fed’s fight against inflation and increased – but still mild – demand is good for the market and Fed alike,” he said. “However, recent inventory gains come much more from softer demand than from an increased willingness among homeowners to list their homes for sale. This makes supply – and its follow-on effect on home prices – sensitive to rate changes, making demand worth watching closely. Without a meaningful return in new listing volumes, the market is reliant on weak demand to allow inventory to grow, limiting the prospect of stronger sales activity without a corresponding risk of inventory drawdowns.”
