With the recent dip in mortgage rates, home buyers have gained approximately $22,500 in purchasing power compared to when mortgage rates peaked at 7.5% in April.
According to an analysis by Redfin, a buyer with a $3,000 monthly budget can afford a $447,750 home with the current mortgage rate of approximately 6.85%, an improvement from April when the same budget could only afford a $425,500 home.
Another signal of improving affordability conditions for buyers is that the monthly mortgage payment on the typical U.S. home—which costs approximately $400,00—has declined to $2,647 with the 6.85% mortgage rate. With the average mortgage rate of 7.5% in April, the monthly mortgage payment on a typical home was $2,814.
According to Redfin, new listings of homes for sale are up 7% year over year and the total number of homes for sale is near its highest level since late 2020, another positive sign for prospective buyers.
“Now is a good time—at least compared to the recent past—for serious house hunters to get under contract on a home,” says Redfin chief economist Daryl Fairweather. “The combination of declining mortgage rates, rising supply, and a lot of inventory growing stale means buyers have a window where they have more purchasing power than earlier in the year and more homes to choose from.”
In addition to more homes on the market, homes are sitting on the market longer than usual. More than 60% of homes listed in May had been on the market for at least 30 days without going under contract, up from 50% two years earlier. Two in five homes had been listed for at least two months, up from 28% two years earlier.
“It’s hard to say how long the window will last. Declining rates should bring many home buyers back to the market soon, which means competition would tick up and home prices would increase even faster than they already are,” says Fairweather. “It’s also possible rates drop further in 2025, which would make monthly costs decline more and increase competition even more.”
