The mortgage rate waiting game has paid off for homebuyers, as they have gained more than $20,000 in purchasing power in recent months. Mortgage rates have steadily decreased, dropping to their lowest level since March after last week’s inflation reading. According to Redfin, a homebuyer with a $3,000 a month budget can now afford a home priced at $447,750.
This is an increase of $22,250 since mortgage rates peaked at 7.5% in April. The purchasing power increase is even more significant compared to October of the previous year. At that time, mortgage rates were just above 8%, limiting the same buyer to a home worth $409,250.
Mortgage rates continued to fall after Thursday’s inflation reading, with the average 30-year fixed daily mortgage rate at 6.81%. Analysts predict that while mortgage rates may continue to decline slightly, they are unlikely to dip below 6% before the end of the year. Even at a 6% mortgage rate, a buyer with a $3,000 monthly budget could afford a home valued at $479,750.
This is a notable $32,000 increase in purchasing power from the current rate. Despite declining mortgage rates, housing sale prices remain at record highs. This maintains historically high total housing costs.
Cooler inflation and the potential for interest-rate cuts have created downward pressure on mortgage rates.
Homebuyers benefit from falling rates
However, the inventory shortage from homeowners reluctant to sell due to fear of losing their low rates has been improving.
Redfin reports that new home listings are up 7% year over year. The total number of homes for sale is at its highest since late 2020. Homes are also staying on the market longer, providing buyers with additional negotiating power.
Daryl Fairweather, Redfin’s chief economist, highlighted the opportune moment for serious house hunters. The combination of falling mortgage rates, rising supply, and increased inventory gives buyers more purchasing power and choices compared to earlier in the year. However, she warned that this window might be short-lived.
Declining rates could soon bring more homebuyers back to the market, escalating competition and potentially driving home prices up more quickly. Chen Zhao, Redfin’s economics research lead, noted that a drop in mortgage rates could bring both buyers and sellers back to the market. The overall effect on prices would depend on which group returns more forcefully.
If sellers come back faster, prices might cool. If buyers return faster, prices might increase. With the dynamic housing market and fluctuating mortgage rates, prospective homebuyers may need to act quickly.
They should take advantage of their increased purchasing power as these trends continue to evolve.
