Buying a home is more affordable now than it has been for more than two years, according to the latest data in the ICE Mortgage Monitor Report.
Principal and interest payments on a median-priced home fell to $2,148 a month, or 30% of median income. That’s the highest level of affordability recorded since early 2023.
Debt-to-income (DTI) ratios for purchase rate locks dropped to 38.5% – their lowest level in 2.5 years, said the ICE report. The DTI ratio for refinance was at a 3.5-year low.
In a statement, ICE said the “recent pullback in rates has created a tailwind for both homebuyers and existing borrowers”.
“We’re seeing affordability at a 2.5-year high, which is beginning to bolster purchase demand, while creating more opportunities for homeowners to lower their monthly payments with a rate-and-term refinance loan.”
Recently, Freddie Mac reported the average 30-year fixed-rate mortgage for September was 6.35%, a significant drop from 6.59% in August.
The ICE report claimed the 30-year mortgage rate averaged 6.26%, slightly less than the Freddie Mac finding.
It said that while most of the US was recording average long-term affordability levels, the coastal markets were “stretched”.
It cited Los Angeles as an extreme example, stating 62% of an average gross income was needed to afford the average price of a home.
Based on this ICE report, here is guidance for first-time buyers and upsizers looking to make their move:
Loan deals – The recent drop in average 30-year fixed rates (6.26%-6.35%) is good news for all buyers. It’s a smart play to secure a pre-approval soon, as this will lock in your borrowing power.
Expensive debt – This is a good moment to re-evaluate your debt load to reduce expensive debt – car loans and credit cards. This will allow you to borrow at a lower rate because your DTI levels will have been reduced.
Upsizer challenge – For those looking to move up the property ladder, selling your current property before buying a new one will simplify your mortgage application for the larger loan. This avoids the stress and cost of a “double mortgage” or a bridge loan.
First-timer tip – Investigate available government and state-level schemes, grants and incentives. These programs can reduce the cash needed upfront, helping you enter the market faster. Also, you should budget for your housing costs to be 30% of gross income, which is the current average.
Think long-term – Buying and selling a home isn’t cheap. There are lots of fees involved. So, think about your needs in terms of a five- to 10-year timeframe. That’s hard for first-time buyers, but a five-year window is a good guide for you.