A homebuyer on a $3,000 monthly budget can afford a $447,750 home with a 6.85 percent mortgage rate, the daily average as of July 11, according to a new report from Redfin.
That buyer has gained $22,500 in purchasing power since mortgage rates hit a five-month peak in April, when they could have bought a $425,500 home with an average rate of 7.5 percent.
Mortgage rates dropping and the supply of homes for sale rising gives buyers a sweet spot before competition picks up, Redfin said.
To look at affordability another way, the monthly mortgage payment on the typical U.S. home — which costs roughly $400,000 —I s $2,647 with the current 6.85 percent rate. That’s down nearly $200 from $2,814 with a 7.5 percent rate.
“Now is a good time — at least compared to the recent past — for serious house hunters to get under contract on a home,” Redfin Chief Economist Daryl Fairweather said in a release. “The combination of declining mortgage rates, rising supply and a lot of inventory growing stale means buyers have a window where they have more purchasing power than earlier in the year and more homes to choose from. But it’s hard to say how long the window will last.
“Declining rates should bring many homebuyers back to the market soon, which means competition would tick up and home prices would increase even faster than they already are. It’s also possible rates drop further in 2025, which would make monthly costs decline more and increase competition even more. One thing is for sure: lower rates will lead to more home sales.”
The drop in mortgage rates comes after the latest Consumer Price Index report showed that inflation is cooling faster than expected and upped the chances that the Fed will cut interest rates by September.
It’s likely that mortgage rates will continue declining slightly in advance of the expected interest-rate cuts, but it’s unlikely they’ll drop below 6 percent before the end of the year, according to Redfin.
Rising inventory is also promising for buyers. New listings of homes for sale are up 7 percent year-over-year, and the total number of homes for sale is near its highest level since late 2020.
More homes are hitting the market partly because homeowners, many of whom are locked into ultra-low mortgage rates, are tired of waiting for rates to drop dramatically before listing their homes. Rates have been sitting at double pandemic-era lows for nearly two years, and homeowners have come to terms with the fact that if they wait for rates to drop to 3 percent or 4 percent before selling and moving onto their next home, they may be waiting for several years. The fact that rates are declining slightly right now may lure more would-be sellers off the sidelines.
Homes are also sitting on the market longer than usual. More than 60 percent of homes that were on the market in May had been listed for at least 30 days without going under contract, up from 50 percent two years earlier. Two in five (40 percent) homes had been listed for at least two months without going under contract, up from 28 percent two years earlier, Redfin said.