Homebuyers Get $25,000 More in Purchasing Power

The recent decline in mortgage rates provides some potential homebuyers the opportunity to afford a home worth an extra $25,000, real estate firm Redfin said on Thursday.

After months of being at their highest since the turn of the century, borrowing costs for home loans have been trending downward in recent weeks, giving buyers a chance to secure cheaper mortgages. On Thursday, Freddie Mac revealed that the 30-year fixed rate declined to 6.77 percent, the lowest point since March.

The drop in rates means that homebuyers go into the housing market with improved strength, according to Redfin. Potential homeowners budgeting to spend $3,000 a month in mortgage payments now boast $25,000 more in purchasing power with rates about 6.8 percent. They can afford to acquire a property priced at $450,000 as of July 17, compared to when rates were at 7.5 percent in April and they could afford a home only costing $425,000.

“To look at affordability another way, the typical U.S. homebuyer’s monthly housing payment was $2,722 during the four weeks ending July 14, $115 lower than April’s all-time high. That’s despite home prices sitting just about $100 shy of last week’s record high,” Redfin pointed out.

Buyers are also confronted with more options when looking at the market. New listings were up 6.4 percent compared to a year ago and are at their highest levels in four years, Redfin reported.

But the market has yet to rebound from spring and early summer doldrums. Pending sales declined nearly 6 percent, the largest drop in eight months, despite rates decelerating in recent weeks.

Buyers may still be experiencing sticker shock when looking at homes listed for sale. Prices are still elevated, with the U.S. median asking price for a home at $405,000, which is 5 percent higher than the same time one year ago. The median sales price was at nearly $400,000, also up by about 4.4 percent on a year-to-year basis, Redfin said.

Prospective homebuyers also could be waiting for interest rates to decline further over the coming months.

“Now that it’s looking increasingly likely the Fed will cut interest rates by the end of the year, some house hunters believe mortgage rates will fall more and are waiting for that to happen before they buy,” Chen Zhao, Redfin’s economic research lead, said in a news release.

Zhao suggested that borrowing costs may not decline more, even as cooling inflation has bolstered the view that the Federal Reserve may cut interest rates beginning in September.

“It’s unlikely mortgage rates will drop much lower in the next few months, as markets are already pricing in the expectation of a rate cut in September, followed by several more at the end of 2024 and into 2025,” Zhao said. “In fact, now may be the right time for house hunters to get serious about making offers before prices increase even more and they lose some power. Plus, there are more homes to choose from, and many listings are growing stale, giving buyers an opportunity to negotiate.”