Falling mortgage rates have given homebuyers an affordability boost, says Redfin

The average American family has accrued an extra $20,000 in housing purchasing power since April. Here's why...
By Connor Sephton
•
17 July 2024
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Starter homes unaffordable

Cooling mortgage rates have given homebuyers extra spending power as they vie to get on the housing ladder, according to a Redfin report.

In July, the average 30-year rate fell to 6.85%—the lowest level since April—pushing the average mortgage payment lower by $167.

Back then, an average family that could afford $3,000 in mortgage payments would have been able to buy a $425,500 home. At today's rate, the same family could buy a home worth up to $447,750.

However, Redfin warned that prospective homeowners still face challenges when attempting to score the keys to their first property.

The median price of a U.S. home has hit a record high for the ninth week running, and most industry insiders predict that prices will not pull back anytime soon.

Although mortgage costs are cooling and expected to fall slightly further, analysts expect that 30-year rates will hover above 6% at least by the end of 2024.

Inventory on the rise

Redfin says there's another silver lining in recent housing data: there's been a 7% rise in the number of new listings on the property market over the past year.

What's more, the total number of homes being advertised is fast approaching levels not seen since late 2020, indicating that would-be sellers are growing tired of the "lock-in effect."

This refers to Americans who are reluctant to move only because they would end up having to refinance on a higher mortgage rate.

It's a sign that Americans are beginning to accept that they'll face a long wait before mortgage rates return to 3% or 4%—that is, if they do at all.

Redfin's chief economist says "serious house hunters" should begin looking into their options with a matter of urgency—with falling rates and rising supply working in their favor.

"But the window is likely to be short," Fairweather warned. "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."

She went on to argue that, even though lower mortgage rates would boost a buyer's spending power, this could be offset by greater demand for housing.

In May, 60% of homes had been listed for more than 30 days and 40% for over 60 days. This means opportunistic buyers in certain areas have the chance to snag a bargain by making an offer under the asking price.

How long that will last remains to be seen.

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