The housing affordability crisis has deterred many potential homebuyers from entering the housing market.
Sticky mortgage rates, rising home prices and down payment expectations have made purchasing a home challenging for first-time buyers without housing equity to tap into.
While the housing market hasn’t returned pre-Covid activity levels, conditions are beginning to improve. Housing inventory is rising and more sellers are offering price reductions to entice hesitant buyers.
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Redfin recently reported that daily average mortgage rates have dropped to their lowest point in the past 10 months, allowing homebuyers to potentially snag competitive deals with the same budget.
However, mortgage rates are tied to economic indicators, meaning that the current window of opportunity may be limited by the growing economic volatility and uncertainty.
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Redfin finds that average daily mortgage rates have fallen consistently since the end of 2024
Despite sticky mortgage rates well above pre-Covid levels, mortgage rates have fallen modestly but steadily over the past ten months. The weak July jobs report increased expectations that the Fed will cut interest rates in September to help stimulate the labor market, lowering mortgage rates in the short-term.
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A recent Redfin report found that average daily mortgage rates hit 6.57% on August 4, the lowest level since November.
The combination of rising housing inventory and lower mortgage rates is strengthening buyer-friendly market conditions, despite tepid demand. While this is a welcome improvement for most homebuyers, it’s unclear how long this shift may last.
Lower mortgage rates will get homebuyers more bang for their buck when house hunting
Housing affordability is one of the main barriers to homeownership, as many first-time buyers struggle to save for down payments on rising home prices and worry about making unmanageable mortgage payments.
However, the majority of Millennial and Gen Z buyers note that rates below 6% would be enough of a reduction to draw them back to the housing market.
Related: Major housing expert predicts huge housing market reset in 2025
Redfin notes that the daily average mortgage rate dip to 6.57% this week gives homebuyers much stronger purchasing power than in May, when rates reached 7.08%.
This 0.5% change amounts to a major financial difference for prospective homebuyers. Americans with a $3,000 monthly housing budget have gained $20,000 in buying power, now able to afford a $458,750 home instead of a $439,000 home they could have purchased in May.
This increase in purchasing power also translates directly to lower mortgage payments. On a median-priced home, a mortgage payment at 6.57% is $2,862, over $100 less than the monthly payment on 7.08% mortgage loan.
Redfin economist recommends buyers act quickly to take advantage of housing inventory, lower rates
Although 0.5% mortgage rate reductions may not be the unmistakable housing market rebound buyers were hoping for, conditions are generally improving. Housing inventory levels are rising, with sellers outnumbering buyers by 500,000 in May.
However, Redfin Chief Economist Daryl Fairweather suggests that homebuyers should strike while the iron is hot, as rates have proven to be inconsistent this year.
“This dip in mortgage rates gives house hunters a window of opportunity to buy before summer ends,” she said.
“While housing costs are still fairly high, the recent decline in rates boosts purchasing power and improves overall homebuying conditions. Combined with the surplus of homes for sale on the market, serious buyers may want to jump in sooner rather than later.”
Related: Fannie Mae predicts major mortgage rate changes are coming soon
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