Economists' Outlook

Housing stats and analysis from NAR's research experts.

Instant Reaction: Mortgage Rates, July 22, 2021

"Mortgage rates dropped significantly this week, providing some relief to homebuyers even as home prices are reaching new record highs. According to the mortgage finance provider Freddie Mac, the 30-year fixed mortgage rate plunged to 2.78% from 2.88% the previous week.

Nevertheless, many first-time homebuyers are being priced out despite these historically low mortgage rates. While inventory is especially limited in the price range of a starter home ($270,500), the affordability gap between first-time homebuyers and all buyers is 34%. To put it simply, buying the typical starter home is more expensive for a first-time homebuyer than it is for any other buyer to purchase the typical home, even though the starter home is less expensive. According to NAR, the affordability index for first-time homebuyers was 116.8 compared to 177.4 for all buyers as of the first quarter of 2021. Keep in mind that a higher index translates to a better affordability.

Thus, building more starter homes could help more renters to become homeowners. First-time homebuyers who bought their starter home 3 years earlier have already built more than $60,000 in equity due to the price appreciation."