With mortgage rates waning since they peaked at almost 8% in October, prospective homebuyers have picked up a large chunk of affordability, according to new numbers from Redfin.
A homebuyer with a monthly budget of $3,000 has gained nearly $40,000 in purchasing power since rates hit their recent Zenith, the Seattle-based real estate brokerage reported. In October, when 30-year mortgage interest rates averaged 7.8%, a $3,000 monthly budget would have bought a $416,000 property. With the current rate hovering around 6.7%, the same budget will buy a $453,000 home.
Put another way, assuming the current 6.7% rate, the monthly mortgage payment on a typical home, valued at approximately $363,000, is $2,545. With an interest rate of 7.8%, the monthly payment swells to $2,713. That’s nearly $200 of relief in just three months.
Even with mortgage rates around three points higher than the lows they slid to during the height of the pandemic housing boom, homebuyers are definitely noting the rate cut and coming to terms with the new norm.
“Bidding wars are picking up as mortgage rates decline and inventory stays low,” said Shoshana Godwin, a Redfin agent in Seattle. “I’ve seen a few homes get 15-plus offers recently, and one got more than 30.”
“Late last year, many listings sat on the market as buyers sat on the sidelines, hoping for rates to drop,” she continued. “Now, buyers are snapping up homes because even though rates haven’t plummeted, people are realizing that the longer they wait to buy a home, the more competition they’re likely to face.”
“Trying to time the market around mortgage rates is probably a waste of energy, as affordability is unlikely to change meaningfully in the next several months,” echoed Daryl Fairweather, chief economist at Redfin. “Instead, buyers should consider their own personal and financial circumstances: What matters most is whether the home meets your needs long term and whether you can afford it. Timing the market mattered in 2021, when we were in a golden window of record-low rates — but that window is closed.”
