While the housing market remains interest rate driven, affordability has improved as rates have settled below 7%, according to the latest Mortgage Monitor Report from Intercontinental Exchange (ICE). The February report suggests the share of income required to purchase a median-priced home fell five percentage points from October’s 28-year high.

ICE says the rebound in affordability has accelerated purchase mortgage demand, which has returned to levels comparable to those seen in the summer of 2023 when interest rates were in a similar range.

“While the mortgage market remains overwhelmingly purchase-centric, refinance incentive is rising, albeit slowly, alongside easing rates,” says ICE vice president of enterprise research strategy Andy Walden. “Since interest rates peaked back in October, we’ve seen a threefold increase in the number of mortgage holders who could reduce their first lien rate by at least 75 basis points with a rate/term [refinance].”

Walden says if rates fall to 6% by the end of 2024 as some forecasts suggest, the number of borrowers with refinance incentives would rise, particularly among those with 2023 originations.

“Prospective home buyers may feel an all-too-familiar sense of dread upon hearing that prices—already at record highs—rose another 5.6% in 2023 according to our ICE Home Price Index,” says Walden. “As always, the truth of the situation is more nuanced than one simple, backward-looking metric might suggest, and the data holds some encouraging signals for these folks.”

The year-over-year price growth can largely be attributed to large growth in the spring and summer of 2023. Recent data suggests the price growth rate will begin to cool in the early months of 2024.

ICE says its research suggests the national inventory deficit improved for the seventh consecutive month, which points to a better housing market environment in the upcoming months in 2024. Walden says the inventory improvement, coupled with declining rates, is a positive sign and both are trending “in the right direction.”

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