Like Goldilocks, buyers have been afforded just the right amount of purchasing power right now, for what is expected to be a short window of time.
A homebuyer on a $3,000 monthly budget can afford a $447,750 home with a 6.85% 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%.
“Now is a good time – at least compared to the recent past – for serious house hunters to get under contract on a home,” said Redfin Chief Economist Daryl Fairweather. “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 follows the latest Consumer Price Index release, indicating that inflation is cooling, increasing the chances of the Federal Reserve making a much-anticipated rate cut by the fall. Economists say interest rates are “unlikely” to fall below 6% before the end of the year.
The typical U.S. home, priced close to $400,000, boasts a monthly mortgage payment of $2,647 with the current 6.85% rate. That’s down nearly $200 from $2,814 with a 7.5% rate.
Inventory is also on the rise, with new listings up 7% year over year, and the total number of homes for sale 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,” Redfin said in its report. “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% or 4% 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.”
