January 29, 2024

Hi everyone. My name’s Taylor St. Germain with ITR Economics, and welcome to this episode of Trends Talk. We at ITR Economics and on TrendsTalk are your unbiased and apolitical source of economic intelligence. And today we’ll be discussing some housing market trends, but looking more at the consumer. I know we talked about the housing market recently, but I had to share these statistics with you here today. Our CEO Brian had passed these along to all the members of our organization and they were shocking. And I even presented some of these statistics while I was traveling last week during one of my keynote presentations. And the reaction from the audience told me, well, these are some pretty good statistics to share. So let’s talk about some of the financial challenges in today’s housing market.

The first statistic I wanted to talk about today is the US average mortgage payment. If we look back to the end of 2020 or early 2021, the average mortgage payment on a 12-month moving average was about $1,200. As we sit here today, at the time of this recording, just about a little over 2 years later, you look at an average mortgage payment of about $2,353. So put that in perspective, beginning of ’21, $1,200. As we sit here today, just a few years later, $2,353. Pretty significant increase in that average monthly payment, and I think that’s reflective of the downturn that the housing market has been through previously. Now, as we sit here today, the housing market is starting to recover. And the good news with that average mortgage payment is if you look at the rates of change, we see that the rates of change are slowing down. So that number is still growing in terms of the average mortgage payment.

But there’s some good news it looks like out there on the horizon, especially as the Federal Reserve is likely to lower interest rates, which will impact mortgage rates in 2024. We would expect to see some easing, at least in the pace of growth and even likely some decline in that average monthly payment. But shocking, a $1,100 increase in just a few years for that average monthly payment. And again, I think that really details some of the challenges the housing market has been through as of late, especially on the affordability side of things.

Another metric, another way to look at some of the financial pressure that participants in the housing market are under as we sit here today, is looking at the US average mortgage payment as a percent of median income. That number as we sit here today is 46.74%. So let me say that again. Average mortgage payment as a percent of median income is about 46.74%. That mortgage payment is taking up a lot of income for individuals here in the United States based on these higher interest rates, based on some of the price appreciation, although we’ve seen a little bit of price decline in certain markets as of late. Now, that number was actually even higher as we look to the end of 2022, so it’s come down a bit. At the end of 2022, the high was about 55%, so more than half of individuals’ median income here in the United States going towards that average mortgage payment.

So again, it’s slightly improved, which is good news. And again, as the rates come down in 2024, as the Federal Reserve has alluded to, should that come to fruition, then we will likely see a little bit more, I guess relief is a way to put it on the consumer side as we look at mortgage payments and median incomes.

And that brings me to the last point, which is if we look at the 15-year mortgage rate or the 30-year conventional mortgage rate, they’re sitting at about 6.14% as we sit here today. That’s the 15-year fixed. And when we look at the 30, it’s about 6.82%. That’s in the range of what we’re calling a new normal. Now again, the Federal Reserve will be lowering rates. Well, has at least said they will be lowering rates as we look towards 2024, and we would expect that to come to fruition here at ITR. The decrease, the amount of decreases, the level of decreases in terms of that Fed funds rate, I think is still in debate. And the Federal Reserve does change their opinions based on some of the economic reports. But we would expect rates, generally speaking, to start coming down in 2024. Nothing significant, probably in the realm of 75 basis points based on what we’ve seen from the recent Fed dot plot. So those numbers I quoted, the 6.8% on the 30, the 6.1% on the 15-year might decline a little bit further as we look at 2024 and those rates coming down.

But we’re not going back to the days of 2%, 3% mortgage rates, at least not anytime soon. So there is some relief coming for consumers in the housing market, and that will bolster some increased activity, especially in the single family market as we look to ’24 and ’25. But again, it’s getting comfortable with this new normal, especially as we look at interest rates.

So the takeaways here are it will be a better time to enter the housing market as we look at ’24 and ’25 lower mortgage rates. We’ll see the home builders starting to get much busier as we look at 2024, especially as we accelerate into the second half of ’24 based on our housing market forecast. So there’s good news building. The good news isn’t where we want it just yet. Consumers certainly want more relief, builders want to see increased activity. We’re starting down the right path in terms of higher growth in this housing market and some relief for those consumers. But we still have a way to go before we’re out of this troubling territory that we’ve been in as we look at the past few years. I hope you found this information helpful. Please like and subscribe to TrendsTalk wherever you get your podcast. Thanks for joining me here today, and I’ll see you on the next episode.