But “that kind of a rate decline is currently unrealistic,” she said. Meanwhile, not even a 0% interest rate would make a typical home affordable in New York, Los Angeles, Miami, San Francisco, San Diego, or San Jose, according to Zillow.
Prakash’s analysis holds income, home prices, and all other housing-related costs equal. This gets at the crux of the ongoing issues of the U.S. housing market: There are a variety of factors that affect housing affordability. And even if one were to change drastically, it wouldn’t result in a sudden affordability surge for hopeful home buyers.
“Even in markets that have seen a heavy correction and have lost 10% [or more] of value, homes are still selling for a higher percentage of people’s average income, making them feel more expensive than they did five years ago,” Main explained.
She encourages her clients to look for a home that meets 85% to 90% of their criteria—say living further away or having one less bedroom—to have a shot at actually finding a home that’s affordable for them. That can be frustrating, though, considering that housing is so expensive “people don’t want to compromise because they feel they are committing so much more financially.”
There are also various mortgage options through smaller banks and credit unions, as well as special VA rates and adjustable-rate mortgages (ARM) that can be more affordable for some borrowers.
Because credit unions are structured differently from for-profit mortgage lenders, they can offer lower loan rates and fees, Schenck explained.
“We aren’t waiting for the market to change,” he said.
Main also said mortgage rates from local banks and credit unions can be more lucrative for some home buyers, but it’s important to know what’s the best fit financially for a home buyer.
One of her clients recently got a lower interest rate through a local credit union, but it’s an ARM that will ultimately change to an unknown rate in the future.
“It got them in the home they wanted at the monthly payment they can afford, and they plan to refinance into a traditional conventional loan later,” she said.
