Redfin stated that buyers can now afford more expensive homes due to a drop in mortgage rates, compared to October’s rates of nearly 8%.
A new report from real estate brokerage Redfin suggests that homebuyers with a $3,000 monthly budget have gained nearly $40,000 in purchasing power since mortgage rates peaked in fall 2018.
A 6.7% mortgage rate means a $3,000 monthly budget can buy a $453,000 home, compared to the $416,000 home a buyer could have purchased in October with a 7.8% rate.
On average, a typical U.S. home costs $363,000, and with a 6.7% rate, the monthly mortgage payment is $2,545. When rates were at 7.8%, the monthly payment increased to $2,713.
Freddie Mac reported on Jan. 25 that the average rate for a 30-year fixed-rate mortgage was 6.69%. With lower rates and tight inventory, Redfin said bidding wars are increasing.
Redfin agents reported that while buyers have come to terms with the 6% range, they were more hesitant when approaching 8%. This is double the record-low 3% rates buyers scored during the pandemic.
It is expected that mortgage rates will remain in the range of 6% for the near future.
Redfin economists predict that mortgage rates will decrease by the end of the year; however, the process may not be smooth. Rate cuts may occur as soon as March, but they are more likely to happen later.
According to Redfin Chief Economist Daryl Fairweather, trying to time the market around mortgage rates is likely a waste of energy, as affordability is unlikely to change significantly in the next several months for serious house hunters.
“Instead of trying to time the market, home buyers should focus on their personal and financial circumstances. The most important thing is to ensure that the home meets their long-term needs and that they can afford it. While timing the market was crucial in 2021 due to record-low rates, that window has now closed.”
