Weekly Mortgage Rates Trend Lower; Report Reveals Housing Strain
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Mortgage rates continued slipping downward this week, in the absence of any major market movements or economic data releases.
The 30-year fixed-rate mortgage averaged 6.76% APR, down 8 basis points from the previous week's average, according to rates provided to NerdWallet by Zillow. A basis point is one one-hundredth of a percentage point.
Easing interest rates are one bright spot in a housing market that remains extremely challenging, especially for first-time home buyers. A report released today by the Harvard Joint Center for Housing Studies (JCHS) highlights these difficulties — rising home prices, meager inventory, inadequate affordable housing construction — while also illustrating benefits and potential pitfalls of homeownership in the United States.
Homeownership bolsters wealth, but unequally
There are plenty of reasons homeownership appeals to many people, but a big one is the opportunity to build wealth. Generally, the longer you own your home, the more home equity you have — your home's current value minus the amount left on your mortgage is the equity, or how much of the home is truly yours. When home values increase, equity grows.
Home equity helps explain why homeowning households have much greater wealth than renter households. Wealth is the market value of assets owned minus debts. Home prices rose 42% from 2019 to 2022, according to the National Association of Realtors, widening an existing wealth gap. The JCHS report finds that in 2022, the most recent year for which data is available, median homeowner household wealth was $396,500, while renter wealth was less than 3 percent of that total, at $10,400.
Homeowners have not benefited equally from these gains, however. Looking at homeowner household wealth by race, the effects of systemic racism and discriminatory practices like redlining are apparent. The JCHS analysis notes that in 2022, Black homeowner households' median wealth was less than half that of white homeowner households, at $202,200 compared to $442,200.
More homeowners struggle with costs
Rising home prices lift home equity, but they also make homeownership more costly. For new homeowners, mortgage payments are higher. But even for existing homeowners, costs can go up, as cities and towns reassess values and raise property taxes. Along with dramatic increases in homeowners' insurance costs, these factors are creating more cost-burdened households, the JCHS report underscores.
A cost-burdened household spends 30 percent or more of its income on housing-related costs, including rent, mortgage payments or utilities. JCHS finds that in 2022, 23% of homeowner households fit the definition of cost burdened. Homeowner households earning less than $30,000 annually make up a substantial portion of this group, as do homeowners age 65 and older.
These groups may have access to funds via equity. But to use that money, the homeowner has to sell, refinance or borrow against the equity. That may not be appealing, particularly for homeowners who would be unable to move to an affordable home or whose mortgage payments would jump at current mortgage interest rates.
For those dreaming of homeownership, the data suggests the importance of budgeting inclusively, taking into consideration both the one-time costs of homebuying and the recurring expenses you'll face as a homeowner. Finding a home that will fit your budget is the first step toward successful homeownership.
