US home prices just smashed another record high as affordability crisis deepens
The cost of buying a new house just hit a fresh record, even as mortgage rates dipped to the lowest level in three months, according to a new report.
Findings from Redfin show the median U.S. home sale price soared to $394,000 during the four weeks ended June 9 – a 4.4% increase from a year earlier.
The monthly mortgage payment at that price, when accounting for the 6.99% median interest rate for a 30-year mortgage, is now $2,829. That is roughly $30 shy of April's record.
Housing costs are unlikely to spiral any higher thanks to a recent drop in mortgage rates, which fell after the government reported that inflation cooled in May. However, they may not go much lower, either.
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"The latest inflation report is good for homebuyers because it has already sent mortgage rates down, though this week’s Fed meeting will temper mortgage-rate declines," said Chen Zhao, economic research lead at Redfin. "But on the other side of the coin, if lower mortgage rates bring back more demand than supply, that could erase the possibility that home-price growth softens, and push prices up even further."
There are a number of driving forces behind the affordability crisis.
Years of underbuilding fueled a shortage of homes in the country, a problem that was later exacerbated by the rapid rise in mortgage rates and expensive construction materials.
Higher mortgage rates over the past three years have also created a "golden handcuff" effect in the housing market. Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell, limiting supply further and leaving few options for eager would-be buyers.
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Economists predict that mortgage rates will remain elevated for most of 2024 and that they will only begin to fall once the Federal Reserve starts cutting rates. Even then, rates are unlikely to return to the lows seen during the pandemic, with investors predicting just one or two rate reductions this year.
Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan this week dipped slightly to 6.95%. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.
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Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
Most homeowners say they are nearly twice as willing to sell their home if their mortgage rate is 5% or higher, according to a Zillow survey. Currently, about 80% of mortgage holders have a rate below 5%.