Despite Home Price Gains, Low Mortgage Rates Drive Demand and Home Affordability Remains High
Record low mortgage rates have helped end the housing bust and have contributed to increasing demand and thus, higher home prices over the past year. Rising incomes and a better job market have also spurred demand as buyers return to the market in droves. The National Association of Realtors' Housing Affordability Index remains high despite home prices increasing for the past 13 months.
The NAR's report showed the national median price for an existing, single-family house was $176,600 in the first quarter, up 11.3% from the first quarter of 2012. The first quarter year-over-year increase was the largest increase in the median home price in over 7 years. You have to go back to the height of the housing bubble to see double digit price increases.
Conventional mortgage rates on 15 year loans hit record lows last week and continue to hover just above record lows this week. Mortgage rates today on 15 year conventional loans are averaging 2.76 percent, a slight increase from last week's record low average rate of 2.73 percent. 30 year mortgage rates are also just above record lows this week averaging 2.62 percent, up from last week's average rate of 2.53 percent.
Long term U.S. Treasury yields have moved higher in the month of May on stronger than expected economic data. 10 year Treasury yields averaged 1.66 percent on May 1st and closed yesterday at 1.92 percent. The 26 basis points rise in yields since the beginning of the month sent mortgage rates higher this past week and will send rates higher this week.
Average rates are increasing this week but rates are also low. The increases won't slow demand for homes since buyers have the most "buyer power" in a generation. The NAR had the following example to show how affordable homes are right now:
The NAR reported the national median family income was $62,200 in the first quarter. If a buyer made a 5% down payment, got a 30 year mortgage rate of 3.5% and had 25% of a gross income devoted to mortgage payments, a buyer would only need an income of $36,500 to buy a house at the median price. With a 10% down payment, the required salary falls to $34,600, and with a 20% down payment, it falls to $30,700.
Even with the recent uptick in mortgage rates, homes remain affordable and in many housing markets in the United States, owning a home is less expensive than renting. Buyers realize this and are buying homes again. In many cases, there are multiple bids on homes - a throwback to the housing bubble.
Home prices are forecasted to increase around 10 percent in 2013 but don't expect double digit price increases in the future. As more inventory comes back onto the market home price increases will return to the more historical norm of 1 percent higher than the inflation rate. Double-digit annual price increases are not sustainable and led to the last housing bust.
Despite all of the positive news, millions of homeowners are still struggling. Every month the Obama Administration releases a "Housing Scorecard." In April's Housing Scorecard, the Obama Administration acknowledges that the housing market has improved but that there is much work left to do to help these homeowners:
The Obama Administration’s efforts to speed the housing recovery are showing continued progress as the April scorecard indicators highlight ongoing improvements throughout the housing market,” said HUD Deputy Assistant Secretary for Economic Affairs Kurt Usowski. “The annual increase in home prices is the highest in nearly seven years and sales of existing and new homes are both up over 10 percent from one year ago. But with so many households still struggling to make ends meet, we have important work ahead.
You can view the Making Home Affordable Report through March 2013 here: Making Home Affordable Performance Report.
Following is a list of current average mortgage rates on conforming and jumbo loans as of May 14, 2013:
Average Conforming Mortgage Rates
Average Jumbo Mortgage Rates
The mortgage rates listed above are average rates but you can find lenders quoting rates below the averages by searching our rate tables here: MonitorBankRates.com/mortgage-rates.
Average Mortgage Rates