Thanks to lower mortgage rates, housing is more affordable than it’s been in 3 years

Mortgage & Real Estate

Due in large part to the persistent decline in mortgage rates throughout 2019, housing is now more affordable than it has been at any point in the last three years.

That’s according to a new analysis of the nation’s housing market from the National Association of Home Builders and Wells Fargo.

As the latest data from Freddie Mac, mortgage rates now sit at 3.69%, more than a full percentage point below where they were at this time last year, when the market rate was near 5% (4.94%, to be exact).

Rates stayed at the same level through the second week of
November 2018, but that was as high as they climbed, as rates then began
dropping and continued dropping throughout much of this year.

And that full-percentage-point-drop has been very good for
homebuyers, as the National Association of Home Builders/Wells Fargo Housing
Opportunity Index shows that housing affordability climbed in the third quarter
to the highest level since 2016.

According to the report, 63.6% of new and existing homes
sold between the beginning of July and end of September were affordable to
families earning the U.S. median income of $75,500.

That’s up from the 60.9% of homes sold in the second quarter
of 2019 that were affordable to median-income earners and up from the first
quarter 2019 total of 62.6%.

As the report notes, much of the increase in affordability
was driven by the decline in mortgage rates.

According to the report, average mortgage rates fell from 4.07% in the second quarter to 3.73% in the third quarter, falling to three-year lows in September.

Also contributing to the rise in affordability was static home prices.

According to the NAHB/Wells Fargo report, the national
median home price remained at $280,000 in the third quarter, the same as it was
in the previous quarter.

Combine those factors with a strong job market and it means that housing is easier for people to afford.

But it’s not all sunshine and roses, especially for first-time homebuyers, as recent data and analysis show that housing may be affordable, there simply isn’t enough of that affordable housing on the market to satisfy demand.

That’s a concern shared by the NAHB, a trade group that
represents homebuilders.

“With mortgage rates at historic lows, consumers are
experiencing greater buying power and increased affordability,” NAHB Chairman
Greg Ugalde said. “Despite this positive development, builders still struggle
with rising construction costs due to labor shortages and excessive
regulations, which will continue to make housing affordability a major
challenge.”

NAHB Chief Economist Robert Dietz said that recent monetary policy decisions from the Federal Reserve, which recently cut its benchmark interest rate for the third consecutive meeting, have helped but it’s not enough.

“While the Federal Reserve’s monetary policy has helped
offset some of the rising construction costs, these headwinds are still
affecting builders’ ability to increase inventory, particularly for entry-level
buyers,” Dietz said. “These higher production costs and other factors have
caused a major decline in housing affordability over the past few years, and we
expect that to remain a concern going forward.”
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