Many homebuyers resurfaced this spring after idling through the winter. But this does not mean that housing has become affordable again.
“We’re still not in normal affordability conditions right now,” Chris Porter, chief demographer at John Burns Research & Consulting, told Yahoo Finance Live (video above). “People are still paying a larger share of their income toward housing than they have historically.”
“The way you restore affordability is one of three ways: You either raise income, or you lower rates, or you lower home prices,” he said.
While income is still growing strongly, Porter said, the other two methods — mortgage rates and home prices — are the sticking factors.
Mortgage rates should be lower
Price conscious buyers are very price sensitive. This was evident in the latest Mortgage Applications data after rates eased slightly.
Order volume saw its biggest weekly advance in three months, according to Mortgage Bankers Association (MBA) for the week ending June 14. Overall, buying activity jumped 17% week over week on an unadjusted basis.
The 30-year mortgage rate fell to 6.69% this week, according to Freddie Mac, down from 6.71% the week before. However, rates have hovered between 6% and 7% for most of the year – keeping buyers on high alert for any kind of decline.
An indication of good news is the new economic data showing slowing inflation. This helped cement the Federal Reserve’s decision this week to halt its aggressive rate hike campaign.
This pause means that mortgage rates can remain flat, some experts previously told Yahoo Finance, unless something significant happens in the economy.
“I think we’re not going down to 3% rates anytime soon,” Porter said. “It was pointed out today in the Fed’s announcement, we’re not going to see the federal funds rate go down anytime soon. Mortgage rates are going to stay higher than people have been used to over the last several years.”
Porter said homebuilders are using mortgage rates to their advantage with their financing arms offering buyouts to buyers who need a lower rate.
Builders also have an advantage due to inventory issues. According to the National Association of Home Builders33% of the homes on the market were new builds, when that share was usually 12.7% between 2000 and 2019.
“The new construction has been kind of able to step in and is a larger share of the inventory that’s available for sale,” Porter said. “And that’s why you see builders doing so well at the moment.”
Still, by Porter’s accounts, at least 17.1 million More new homes must be built over the next decade to meet the growing demand. But construction won’t happen overnight, and he expects a slight slowdown in single-family construction over the next two years.
Another big inventory problem is the lack of previously owned homes for sale. Homeowners are hesitant to list their current homes and give up their current low mortgage rate.
“We have very strong housing demand, the challenge is the lack of supply, especially on the resale side,” Porter said. “We are at very low levels of resale supply. This has actually created a kind of floor for how low prices can go, at least temporarily.”
The few homeowners selling in today’s market know they have the upper hand.
The median price of a single-family home rose to $454,900 for the week ending June 12, Altos Research found, up from 450 thousand dollars The last week. Newly Pending Home Sales Prices also posted a slight increase this week, up 1%, to $384,000.
These types of prices are unaffordable for many potential buyers.
“[We’re] “We’re going to see fewer families being created in the short term so that people feel that affordability is in their best interest, and they can buy a home,” Porter said.
Gabriela Cruz Martinez is a personal finance correspondent at Yahoo Finance. Follow her on Twitter @employee.
Click here for the latest personal finance news to help you invest, pay down debt, buy a home, retire and more
Read the latest financial and business news from Yahoo Finance
“Reader. Infuriatingly humble coffee enthusiast. Future teen idol. Tv nerd. Explorer. Organizer. Twitter aficionado. Evil music fanatic.”