The housing market is under strain with prices falling as families are unwilling to move and refinance their mortgages at current rates.
However, a glimmer of hope arrived when the average daily mortgage rate fell to 6.57 percent on Monday — the lowest in 10 months — according to a new report from Redfin.
However, experts have revealed that it will take much lower rates to revive the flagging market.
Nationwide mortgage rates would have to fall more than two percent to 4.43 percent to make the typical home affordable for a median-income family, a new report from Zillow claims.
The analysis defined affordable monthly payments to be less than 30 percent of a household’s income, and assumed a 20 percent down payment.
The two percentage point drop would make cities such as Dallas, New Orleans and Nashville affordable, according to the study.
On the other hand cities with extortionately high housing costs – such as New York, Los Angeles and Miami – would not become affordable even if rates fell to 0 percent.
On the other end of the spectrum areas of the US where home prices are much lower would remain affordable even if rates climbed higher than they are now.
Mortgage rates would have to fall more to 4.43 percent to make the typical home affordable
For example, the report cites Pittsburgh, Pennsylvania where the average home is $244,928 compared to the national average of $369,147.
A median-income family could still buy a home there even if rates jumped to 9 percent, Zillow found.
Birmingham Alabama, Detroit, Michigan and Buffalo, New York are also areas that would remain affordable if rates surged above 7 percent again.
Even with rates falling Zillow expects prices to end the year two percent lower than the start.
‘That small decline won’t be much of a setback to most homeowners’ equity following the 49 percent increase since 2019,’ Zillow economist Anushna Prakash wrote.
‘It also won’t move the needle very far for first-time buyers priced out of the market,’ she explained.
‘Home prices and/or mortgage rates would need to drop by massive amounts to make a typical home affordable for a median-income family.’
Prakesh added that those waiting for a price crash large enough to make buying affordable shouldn’t hold their breath.
Zillow economist Anushna Prakash said those waiting for a price crash shouldn’t hold their breath
Homes in Los Angeles would not become affordable even if rates fell to 0 percent.
Affordable monthly payments are considered to be less than 30 percent of a household’s income
Austin experienced a massive real estate boom during the pandemic that has since reversed
The weak jobs reported could incentivize Fed chair Jerome Powell to cut interest rates
Without an alarming slowdown in economic growth and a rise in the unemployment rate a correction is unlikely.
Investors are now waiting with bated breath to see if the Federal Reserve will cut interest rates at its September meeting.
Fed chair Jerome Powell has provoked the wrath of Trump by continuing to hold benchmark rates between 4.25 and 4.5 percent.
The most recent jobs report showed hiring growth dropped dramatically last month and unemployment ticked up, a key metric that may entice the Fed to cut rates.
Nonfarm payrolls added 73,000 in July, far lower than the 100,000 expected by analysts. The unemployment rate also ticked up to 4.2 percent.
Last year the ‘Oracle of Wall Street’ Meredith Whitney told the Daily Mail that rates need to drop below 6 percent to get the market moving.
