Despite record high prices, two factors are creating opportunities for homebuyers this summer: falling mortgage rates and rising supply, according to a new Redfin report.
Homebuyers are finally gaining some purchasing power now that mortgage rates have dropped to their lowest level since March, and home supply is rising.
The report found a homebuyer with a $3,000 monthly housing budget can afford a $447,750 home at the current daily average mortgage rate of 6.85% as of July 11. This represents an increase of $22,500 in purchasing power compared to April, when the average mortgage rate was 7.5%, allowing them to afford a $425,500 home.
Redfin said the drop in mortgage rates follows a recent CPI report indicating that inflation is cooling faster than anticipated, increasing the likelihood the Fed will cut interest rates by September. The report did note that while mortgage rates may continue to decline slightly in anticipation of the cuts, they are unlikely to fall below 6% before year’s end.
Despite the drop, home sale prices continue to sit at record highs and are unlikely to fall anytime soon.
But with more inventory to choose from, buyers have options.
New listings have increased by 7% from last year, bringing the total number of homes for sale to its highest level since late 2020.
Redfin attributes the increase in listings to homeowners getting tired of waiting for rates to fall before listing their homes, and, as rates come down, more would-be sellers may be ready to make the move.
Homes are also taking longer to sell.
More than 60% of homes on the market in May were listed for at least 30 days without securing a contract, compared to 50% two years ago. Additionally, 40% of homes were on the market for at least two months without a contract, up from 28% two years ago.
Redfin Chief Economist Daryl Fairweather said now is a good time, at least compared to the recent past, for serious house hunters to get a contract on a home.
“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,” Fairweather said. “But it’s hard to say how long the window will last.
“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. 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.”