Homebuyers Still Banging Heads Against The Mortgage Interest Wall. When Will They Break Through?

Despite a slight decline in mortgage rates from their recent high point, housing affordability hasn't improved significantly.

Over the past four weeks ending on Sept. 3, the median U.S. home-sale price increased by 4.5% year over year, while mortgage rates have stayed above 7%. As a result, the typical monthly mortgage payment is now at $2,612 — just $18 less than the all-time high recorded in May, according to a report from Redfin.

Elevated housing costs are dampening the demand for home purchases, leading to a 28-year low in mortgage applications. The average 30-year fixed-rate mortgage decreased from 7.81% on Aug. 31 to 7.12% on Sept. 7. The average 15-year fixed mortgage rate declined slightly, moving from 6.55% to 6.52%.

"The market is marching on, especially for turnkey homes," Chicago Redfin Premier agent Niko Voutsinas said. "If folks can figure out a way to buy instead of rent they will."

Rising prices can be attributed to a supply shortage. Year over year, the total number of homes available on the market has declined 18%, marking the most significant decline since February 2022, according to Redfin.

New listings also have dropped by 9% because many homeowners who have low mortgage rates are reluctant to sell their properties. Buyers outnumber sellers in many parts of the country.

Some buyers who believe home prices will continue to rise are cutting back on expenses to increase their housing budgets.

"They're nervous that the minute rates come down, a flood of competition will edge them out," Voutsinas said. "Those buyers typically need to move quickly and offer at or above the asking price if they love a home because so few listings are hitting the market."

Only the 12 people on the Federal Open Market Committee (FOMC) can predict interest rate movements with any certainty. But this hasn't deterred economists like Preston Caldwell, a senior U.S. economist at Morningstar Research Services, from making predictions.

"I think rates will start cutting in early 2024," Caldwell told CNBC Select. "I think inflation will be nearing the Federal Reserve's 2% target at that phase, and the economy will show signs of slowing, but it's hard to predict."

Caldwell isn't alone in his projections. Elliot Eisenberg, chief economist at Graphs and Laughs, said many economists believed that the second half of 2023 would see rates lower than they were at the end of last year, but that isn't the case.

"These things take a long time to work their way through the economy, so sometime in 2024 sounds about right," Eisenberg said.  

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