The popular theory on why home prices have yet to respond in a big way to lower mortgage rates is that we need deeper reductions to improve affordability.
A 3.9 per cent mortgage rate plus a 30-year amortization brings us back to pre-pandemic levels for mortgage payments as a percentage of household income, BMO said. From 2004 through 2020, mortgages ate up between 30 and 37.5 per cent or so of household income. A jump in mortgage rates took that level to around 50 per cent, and falling rates have trimmed it back to around 40 per cent.
Mortgage rates are influenced mainly by what’s happening in the bond market, which has lately been mulling over the resilience of inflation in the U.S. economy. Bond prices have fallen, which pushes up yields. In this environment, lower mortgage rates are unlikely.
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