A homebuyer with a monthly budget of $3,000 can afford a $447,750 home, according to a new Redfin report.
Redfin’s calculation assumes a mortgage rate of 6.85%, the daily average of July 11 per Redfin data. That rate is the lowest level in four months, on the heels of an encouraging inflation report that may have increased the chances of a rate cut in the third quarter this year.
The typical homebuyer has gained some $22,500 in purchasing power since April, when rates hit their recent high. At that time, a homebuyer with the same budget could afford a home priced at $425,500, given the average rate of 7.5%.
Put another way, the monthly mortgage payment on a $400,000 home is $2,647 with July’s mortgage rate, down almost $200 from $2,814 at the April rate of interest.
An uptick in inventory has also been a boon for buyers, with new home listings up 7.3% year over year at the beginning of July, according to Redfin’s numbers. The total number of homes for sale is now close to its highest level since the beginning of the pandemic housing boom in late 2020.
“More homes are hitting the market partly because homeowners, many of whom are locked into ultra-low mortgage rates, are tired of waiting for rates to drop dramatically before listing their homes,” data journalist Dana Anderson wrote on Redfin’s website. “Rates have been sitting at double pandemic-era lows for nearly two years, and homeowners have come to terms with the fact that if they wait for rates to drop to 3% or 4% before selling and moving onto their next home, they may be waiting for several years. The fact that rates are declining slightly right now may lure more would-be sellers off the sidelines, too.”
Put it all together and there may be a window for shrewd house hunters to find an oasis in the affordability desert.
“Now is a good time — at least compared to the recent past — for serious house hunters to get under contract on a home,” said Daryl Fairweather, Redfin’s chief economist. “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.”
That window, however, is likely a short one, Fairweather continued.
“Declining rates should bring many homebuyers back to the market soon, which means competition would tick up and home prices would increase even faster than they already are,” he said. “It’s also possible rates drop further in 2025, which would make monthly costs decline more and increase competition even more. One thing is for sure: lower rates will lead to more home sales.”
