Real Estate News

Homes becoming more affordable, but how much does that help shoppers?

Published: 12 Oct 2017

The ups and downs of the housing market in recent months have come for a variety of reasons. When home sales have fallen, it has largely been because of a constrained inventory, which consequently leads to higher prices. At the same time, higher prices haven't scared off would-be buyers to this point, though experts caution that home values and mortgage rates alike will probably continue rising for some time to come, depressing affordability even more.

But through the end of the third quarter of 2017, overall affordability improved on a quarterly basis in 60 percent of counties nationwide, according to the latest U.S. Home Affordability Index from ATTOM Data Solutions. However, nearly 80 percent were still less affordable than they were at the same point last year. The good news for some shoppers is that improving affordability arrived in many counties containing some of the larger population centers in the country, including Los Angeles, Chicago, Houston, Phoenix and San Diego.

On the other hand, the national level of affordability is still at the lowest level observed since the third quarter of 2008.

"Falling interest rates in the third quarter provided enough of a cushion to counteract rising home prices in most U.S. markets and provide at least some temporary relief for the home affordability crunch," said Daren Blomquist, senior vice president at ATTOM Data Solutions.

Mortgage applications are sliding as rates rise.Mortgage applications are sliding as rates rise.

How are consumers reacting?
In the week ending Oct. 6, the total number of home loan applications filed nationwide slipped 2.1 percent on a seasonally adjusted basis from the previous seven-day period, driven almost entirely by a 4 percent decline in refinance activity, according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association. Meanwhile, purchase requests slipped just 0.1 percent but remained 7 percent higher than the level seen in the same week last year on an unadjusted basis.

Because of these shifts, refinances once again make up less than half of all mortgage applications, at 49 percent, down from the previous week's slight majority of 50.1 percent, the MBA noted.

Rates have an effect on activity
It should come as no surprise that refinances in particular took a step back because mortgage rates rose slightly in the week ending Oct. 5, hitting their highest level in six weeks, according to Freddie Mac's latest Primary Mortgage Market Survey. The average on 30-year fixed-rate mortgages - which are usually used for purchases - rose to 3.85 percent from the previous week's 3.83 percent, but remained well above year-ago levels of just 3.42 percent.

Meanwhile, the mean for 15-year FRMs - most often utilized in refinances - ticked up to 3.15 percent from 3.13 percent, the data showed. This rate, too, was up considerably from the 2.72 percent seen in the same week in 2016.

While it's understandable that consumers would be wary of rising prices and mortgage rates, it's worth noting that affordability remains strong in comparison with both historical and pre-recession norms. And with both these affordability factors likely to keep rising before the end of the year, the sooner would-be buyers and current owners can start the mortgage process, the more likely they will be to lock in strong affordability.