Veterans United Home Loans is a registered DBA of Mortgage Research Center, LLC, an affiliate of Three Creeks Media.
A new survey from Veterans United, published Oct. 22, suggests aspiring home buyers are growing increasingly realistic about conditions in the housing market. More than half (57%) believe that mortgage rates are likely to be higher a year from now.
However, just 32% say they would wait for rates to fall before purchasing a home. This time last year, 39% said they'd wait for lower mortgage rates.
Only one in three aspiring home buyers (33%) now say they plan to wait for home prices to fall, down from 39% a year ago.
"Buyers aren't expecting a perfect market," said Chris Birk, vice president of mortgage insight at Veterans United in a statement. "More of them appear willing to make a move without waiting for rates or prices to fall. They're adjusting their expectations to the market that's in front of them."
What's Happening With Mortgage Rates?
It's impossible to predict with much certainty how mortgage rates will move over the next few hours, let alone over the next year. Markets are fickle, and some economic data that pushed them higher one month could drag them lower the next.
Still, there are some consistent drivers of higher mortgage rates. And at least three of those look likely to remain in place for the next year or so:
- High inflation, currently largely driven by the Iran war — U.S. Ambassador to the United Nations Mike Waltz warned last week that the war could last another year, The Financial Times reported. That may be a worst-case scenario, but many believe that high gas prices and inflation will prove sticky even if the war ends this year.
- High borrowing — Investors typically buy bonds from lenders to fund borrowing, receiving in return a fixed income together with their original investment back in the end. And right now there's a boom, with peak demand from Western governments, AI, tech, and data center providers, and consumers. To compete with these, mortgage rates must remain high.
- Tariffs — These tend to have an inflationary effect because they're paid by U.S. companies importing goods, many of which pass on the extra cost to consumers. Any escalation in their use might push mortgage rates higher.
No wonder a common mantra in markets currently is "higher for longer." It means higher-than-expected interest rates for longer than expected.
What About Home Prices?
There may be better news for home buyers concerning house prices. However, that depends on where they want to buy.
On Tuesday, the S&P Cotality Case-Shiller National Home Price Index showed prices rising year over year by 2.1% in August. However, The Wall Street Journal noted, "For the 15th consecutive month, U.S. home values fell in real terms, as August’s 3.4% inflation ran roughly 1.3 percentage points above the 2.1% home price gain, the survey said."
"Home Prices Are Starting to Fall in Some Pockets of the U.S.," was a headline in The New York Times on Oct. 22. Joel Berner, a senior economist at Realtor.com, told The Times that prices on more than 20 percent of listings were reduced in September.
Inevitably, some local housing markets are still booming. But those looking in Texan and Floridian cities might find some real bargains. "What were the hot markets are now the pretty cool markets," Berner said.
At the end of September, Realtor.com published its monthly housing trends for that month. And it found price cuts at a four-year high across all regions and 36 of the top-50 metros. So, it's not just Texas and Florida that are friendly toward first-time buyers; but they do tend to be especially so.
Berner singled out Austin, TX, in his conversation with The Times. In September, home prices there slid a full 8% on a price-per-square-foot, year-over-year basis.
Home Affordability Still an Issue
Last week, ATTOM, a leading source of real estate analytics, published its latest U.S. Home Affordability Report.
"Affordability remained a challenge in the third quarter, even as some of the underlying factors moved in a favorable direction," said Rob Barber, CEO of ATTOM, in a news release. "Home prices declined nationally and wage growth outpaced price growth in many counties, but those gains were not enough to meaningfully improve affordability across much of the country."
Among the least affordable populous counties ATTOM analyzed were:
- Cook County, IL (typical ownership expenses consumed 30.2% of typical wages)
- Maricopa County, AZ (37% of typical wages)
- San Diego County, CA (69.6% of typical wages)
- Los Angeles County, CA (69.9% of typical wages)
- Orange County, CA (92.6% of typical wages)
A whopping 92.6% of the typical wage in Orange County would be eaten up by homeownership expenses. Wow! One would need to be a real highflier to buy a home there.
The most affordable populous counties identified by ATTOM were:
- Wayne County, MI (17.9% of typical wages)
- Philadelphia County, PA (20.2% of typical wages)
- Harris County, TX (20.7% of typical wages)
- Dallas County, TX (24.3% of typical wages)
- Bexar County, TX (27.2% of typical wages)
Of course, most first-time homebuyers can't move to a place just because homes are affordable there. Quite rightly, their focus tends to be on their careers, and they must move to where their employment prospects are best. Things may be different for those who almost exclusively work from home.
But it's encouraging that aspiring homeowners are growing increasingly realistic about the housing market they're facing. High mortgage rates may be here to stay for a while, but they're unlikely to remain high forever. And when they eventually drop, borrowers can refinance to lower rates, having already secured their position on the housing ladder.
