Homebuyers Have Gained $1,000 Every Day In Purchasing Power Over The Last Month As Mortgage Rates Fall To 16-Month Lows: 'Now Is The Time'

Homebuyers’ purchasing power increased by about $1,000 per day over the past month as mortgage rates tumbled to their lowest levels since April 2023.

According to a new Redfin report, the move down is injecting optimism into a market grappling with affordability challenges. A prospective homebuyer with a $3,000 monthly budget can now afford a $466,000 home at the current average mortgage rate of 6.35%. This represents an increase in purchasing power from just a month ago, when the same budget would have stretched to only a $437,250 home at the then-rate of 7.15%.

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“Mortgage rates are falling further and faster than expected due to last week’s soft jobs report and mounting recession fears,” Daryl Fairweather, Redfin’s Chief Economist, was quoted in the report. The unexpected rate dip has effectively added nearly $30,000 to buyers’ budgets in weeks.

For those eyeing the median-priced U.S. home – which currently sits at around $443,000 – the monthly mortgage payment has dropped by almost $200 compared to a month ago. That reduction in monthly carrying costs could be the catalyst that brings hesitant buyers off the sidelines.

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The chief economist advised potential homebuyers to act swiftly. “For house hunters who have been waiting for rates to fall before they buy a home: Now is the time,” she urged. She reasons that while rates may continue to decline throughout the year, the drops will reignite competition and drive home prices higher, potentially negating the savings from lower mortgage rates.

Current market conditions present a unique opportunity. Buyers can potentially capitalize on improving affordability and an inventory of homes that have been on the market for extended periods. Redfin economists anticipate an increase in new listings in 2025 as ‘move-up' buyers attempt to leverage lower rates. Still, they warn that demand could outstrip supply, leading to faster sales and more above-list-price transactions.

However, despite any improvements, housing affordability remains challenging for many Americans. Home prices continue to hover near record highs, and even with the recent decline, mortgage rates are still "more than double pandemic-era lows," Redfin noted.

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Is The Downswing Enough To Bring Buyers Back?

While the recent drop in mortgage rates has undoubtedly improved affordability, some industry experts argue that more reduction is needed to reinvigorate the market.

Nick Gerli, CEO of Reventure Consulting, says that the current improvements, while welcome, may not be enough to spark a resurgence in buyer demand. “In reality, we need to get to $2,100-$2,200/month payment for a real bounce back in buyers,” Gerli said on X, formerly Twitter.

He said achieving that level of affordability would require mortgage rates to fall to 5.5% (from the current 6.35%) and a 15% drop in home prices.

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Even with the recent declines in mortgage rates, Gerli notes that the ratio of house payments to income is still around 40%, higher than at the peak of the 2006 housing bubble. “That payment ratio needs to drop significantly – down closer to the long-term average – before demand returns,” he argues.

Recent data shows a disconnect between current market conditions and what some experts believe is necessary for a full recovery. The mortgage application index, a key indicator of buyer demand, remains at its lowest level in 30 years, down 13% year over year and nearly 50% from pre-pandemic levels.

Potential buyers face a decision. On one hand, recent improvements in affordability present an opportunity that hasn’t been seen in over a year. On the other hand, some experts warn that the changes may not be enough to address the underlying affordability crisis in the housing market.

For now, Redfin’s economists’ advice is clear: Those who have been waiting for rates to drop should consider acting quickly. 

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