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Soaring Home Prices Set New Records, Squeezing American Homebuyers

by Richard A Reagan

The cost of purchasing a new home in the United States has reached an all-time high, creating an affordability challenge for many Americans.

According to the latest data from Redfin, the median U.S. home sale price in June climbed to $397,954—a nearly 5% increase from the same period last year, marking the largest annual jump since March.

The surge in home prices is compounded by elevated mortgage rates, which have remained high throughout the year. 

The median interest rate for a 30-year mortgage now stands at 6.86%, translating into a monthly mortgage payment of approximately $2,749.

This figure is perilously close to the record monthly payment of $2,837 set in April, slightly offset by a modest decrease in mortgage rates.

Lisa Sturtevant, chief economist at Bright MLS, highlights the core issue facing the market: “High mortgage rates and record-setting home prices have made affordability the biggest challenge in the housing market in 2024.”

Sturtevant notes that the influx of new listings is insufficient to ease the burden, as increasing numbers of potential buyers find themselves priced out. The anticipation of potential rate decreases later in the year may prompt some buyers to delay their purchases, potentially leading to a slower summer for home sales.

Several factors contribute to this affordability crisis. A significant shortage of homes, fueled by years of underbuilding, has been exacerbated by rising mortgage rates and costly construction materials.

Furthermore, those who secured mortgages at record-low rates during the pandemic are reluctant to sell, creating a “golden handcuff” effect that restricts supply and limits options for prospective buyers.

Economists predict that mortgage rates will remain high for the majority of 2024, with only slight reductions expected following anticipated cuts in Federal Reserve rates. However, it is unlikely that rates will return to the historic lows experienced during the pandemic, with market predictions leaning towards only one or two rate cuts this year.

Mortgage giant Freddie Mac reports a slight increase this week in the average rate on a 30-year loan to 6.95%, still significantly lower than last fall’s peak of 7.79% but starkly higher than the 3% lows of the pandemic era.

The supply of available homes remains substantially reduced, down 34.3% from levels seen before the COVID-19 pandemic struck in early 2020, according to Realtor.com.

The prospect of selling becomes more appealing to homeowners as mortgage rates rise, with a Zillow survey indicating that homeowners are nearly twice as likely to consider selling if their mortgage rate reaches 5% or higher. Currently, about 80% of mortgage holders enjoy rates below this threshold.

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