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Housing Affordability Worsens as Mortgage Rates Forecasted to Hit 6.1%

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Rising home prices and mortgage rates challenge homeownership, pushing affordability to a 30-year low with a median home price of $384,500.

By Barry Stearns

4/4, 07:48 EDT
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Key Takeaway

  • Mortgage rates forecasted to average 6.1% by Q4, amidst rising home prices and market volatility.
  • U.S. median home price hits $384,500, driving monthly mortgage costs to $2,001 with a 20% down payment.
  • Strategies like temporary buydowns are being explored for affordability, though they come with limitations and upfront costs.

Housing Affordability Woes

The dream of homeownership is becoming increasingly elusive for many Americans, as the combination of historically high home prices and elevated mortgage rates pushes the cost of buying a single-family home to its most expensive level in over three decades. Despite the optimism of some market watchers, the affordability crisis shows no signs of abating, with experts cautioning that creative mortgage arrangements may be necessary to navigate this challenging landscape.

Mortgage Market Volatility

Joel Kan, deputy chief economist of the Mortgage Bankers Association, forecasts an average mortgage rate of 6.1% by the fourth quarter of this year, alongside expectations of significant market volatility. This prediction comes as a blow to prospective buyers who were hoping for relief from the high rates that have characterized the market in recent months. The recent uptick in rates, from 6.65% in mid-February to 6.9%, underscores the unpredictable nature of the mortgage landscape, a far cry from the sub-3% rates seen during the pandemic.

Rising Home Prices

Compounding the issue, the median price of a home in the U.S. has surged to $384,500, marking a 5.7% increase from last year. This price hike, driven by a persistent housing shortage, means the average monthly mortgage cost now stands at $2,001 with a 20% down payment. The situation is further complicated by the uncertainty surrounding how buyers and sellers will share agent commissions following a significant legal settlement that could potentially keep agent commissions high.

Strategies to Lower Mortgage Costs

In response to these challenges, buyers, sellers, and lenders are exploring various strategies to make mortgages more affordable. Temporary buydowns have gained popularity, offering a short-term relief by reducing mortgage rates for a few years. However, Greg McBride of Bankrate warns that this strategy requires buyers to qualify for a mortgage based on the current rate and is not a long-term solution. Permanent buydowns and assumable loans present alternative options, but each comes with its own set of caveats, including substantial upfront costs and eligibility restrictions.