The cost of buying a new house has reached a new high, even though mortgage rates dipped to their lowest in three months, a new report shows.
According to Redfin, the median U.S. home sale price jumped to $394,000 during the four weeks ending June 9. That's a 4.4% rise from last year.
The monthly mortgage payment for that price, with a 6.99% median interest rate for a 30-year mortgage, is now $2,829. This is just $30 short of April's record.
Housing costs might not climb higher because of the recent drop in mortgage rates. These rates fell after the government reported a cooling of inflation in May. However, they might not fall much further either.
Chen Zhao, an economic research lead at Redfin, said, "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. 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."
Several factors contribute to the affordability crisis.
Years of underbuilding have created a shortage of homes. This problem worsened with the rapid rise in mortgage rates and costly construction materials.
Higher mortgage rates in the past three years have also created a "golden handcuff" effect. Sellers who secured a record-low mortgage rate of 3% or less during the pandemic are reluctant to sell, reducing the supply further. This leaves few options for eager buyers.
Economists predict mortgage rates will stay high for most of 2024. They expect rates to fall only when the Federal Reserve starts cutting rates. Even then, rates may not return to the pandemic lows, with only one or two rate cuts predicted this year.
Freddie Mac reported on Thursday that the average rate on a 30-year loan dipped slightly to 6.95%. This is down from a peak of 7.79% in the fall but remains much higher than the pandemic-era lows of just 3%.
A separate report from Realtor.com shows that available home supply is down by a shocking 34.3% from the typical amount before the COVID-19 pandemic began in early 2020.
A Zillow survey found that most homeowners are almost twice as likely to sell if their mortgage rate is 5% or higher. Currently, about 80% of mortgage holders have a rate below 5%.