Housing prices hit another record high as affordability crisis deepens
The cost of buying a new house just hit a fresh record even as mortgage rates pulled back from a five-month high, according to a new report.
Findings from Redfin show the median U.S. home sale price soared to $387,600 during the four weeks ended May 19 – a 4% increase from a year earlier. The monthly mortgage payment at that price, when accounting for the 7.02% median interest rate for a 30-year mortgage, is now $2,854. That is roughly $20 shy of April's record thanks to a slight drop in mortgage rates.
"Elevated mortgage rates and high home prices have been keeping some buyers on the sidelines this spring," said Lisa Sturtevant, Bright MLS chief economist. "First-time homebuyers are having the hardest time."
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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.
"Move-up buyers feel stuck because they’re ready for their next house, but it just doesn’t make financial sense to sell with current interest rates so high," said Sam Brinton, a Redfin Premier agent in Utah.
Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan this week dipped slightly to 6.94%. 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%.