A Contrast Between Affordability and Low Rates
Philadelphia — The U.S. housing market is currently witnessing a fascinating dichotomy: on one hand, buyers struggle with affordability, while on the other, homeowners benefit from historically low mortgage rates.
According to Priscilla Almodovar, CEO of Fannie Mae, this situation creates “a tale of two markets.” Homeowners are generally in a good position due to the substantial equity in their homes and exceptionally low mortgage rates ranging between 2% and 4%. However, they face a “lock-in effect,” hesitating to give up their favorable mortgages by moving to a new property accompanied by higher interest rates.
A June analysis from Redfin revealed that approximately 92% of U.S. homeowners with mortgages currently enjoy rates below 6%. Yet, as the 30-year mortgage rate slowly creeps towards 8%, homeowners find little incentive to sell their properties, as purchasing another home would require them to adopt a less favorable mortgage.
On the flip side, prospective buyers encounter a different set of challenges. Mortgage rates have reached their highest level in 23 years, making home buying more expensive. Furthermore, the low inventory of homes exacerbates the situation. In September, the number of homes for sale decreased by 4% compared to the same period last year, as reported by Realtor.com.
Fannie Mae’s latest forecast predicts that mortgage rates will hover around the 7% range throughout most of 2024, before gradually decreasing to 6.7% by the end of next year. Doug Duncan, Chief Economist and Senior Vice President at Fannie Mae, anticipates that this higher-rate environment will continue to impede housing activity and further complicate housing affordability over the next few years.
