Homebuyers, newly infused with extra spending power, are returning to the housing market as they come to terms with 6% rates and move to beat out increasing competition.
Redfin reported that buyers on a $3,000 monthly budget have gained almost $40,000 in purchasing power as rates have fallen from a peak in October 2023.
This theoretical buyer can afford a $453,000 home with a mortgage rate at roughly 6.7%. Just a few months ago, they could only snag a $416,000 home at a 7.8% interest rate, a $37,000 difference.
Costs are easing for buyers across the income spectrum, of course. The monthly mortgage payment on the typical U.S. home (about $363,000) is $2,545 with a 6.7% rate but clocked in at $2,713 at 7.8%.
Though Americans are missing the days of 3% interest rates in the wake of the pandemic lockdown, many are finally accepting that huge declines aren’t on the table anytime soon and are taking advantage of even small changes. Purchase applications are on the rise.
“My advice to serious house hunters: 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,” said Redfin Chief Economist Daryl Fairweather.
“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.”
Redfin predicts rates will stay in the 6’s at least until the Central Bank cuts interest rates. That is not likely to happen at their meeting this week.
Analysts say there’s a 50/50 chance the Fed commits to cuts in March, but that decision will rely heavily on economic data expected in the coming week. Even when cuts do come, rates are likely to slip, not plummet.
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