Falling Mortgage Rates, Rising Supply Create Opportunity for Homebuyers This Summer, Even Amid Record-High Prices

Rhea-AI Summary

Redfin reports that homebuyers with a $3,000 monthly budget have gained $22,500 in purchasing power as mortgage rates dropped to 6.85% from a five-month peak of 7.5% in April. This enables them to afford homes priced at $447,750, up from $425,500. The decline in rates follows a favorable CPI report indicating cooling inflation, which increases the likelihood of a Fed rate cut by September. Although mortgage rates are decreasing, home prices remain at record highs. Inventory is rising, with new listings up 7% year-over-year and total homes for sale near their highest levels since late 2020. Many homes are sitting on the market longer, giving buyers the opportunity to negotiate for lower prices and other benefits. Redfin's Chief Economist Daryl Fairweather highlights this period as a favorable window for serious buyers due to declining rates and increasing supply, though competition may intensify if rates drop further.

Positive

• Homebuyers have gained $22,500 in purchasing power as mortgage rates dropped to 6.85%.
• New listings of homes for sale are up 7% year-over-year.
• Total number of homes for sale is near its highest level since late 2020.
• Buyers can negotiate for lower prices and financial benefits, such as home repairs or closing costs.

Negative

• Home prices remain at record highs.
• Many homes are sitting on the market longer, indicating less desirable properties are harder to sell.

Insights

Financial Analyst

The recent drop in mortgage rates coupled with rising housing inventory presents a notable shift in the real estate market. The increased purchasing power for homebuyers, who can now afford homes $22,500 more expensive than a few months ago, means potential increased demand in the housing sector. However, it's essential to note that home prices remain at record highs, which can still be a barrier for many buyers.

From a financial perspective, the cooling of inflation and the potential for the Fed to cut interest rates by September suggest a favorable environment for buyers, but also point to potential volatility. Inventory levels increasing by 7% year-over-year indicates a shift towards a buyer's market, yet the fact that many homes are sitting longer on the market highlights ongoing affordability issues. This situation can lead to potential price negotiations and discounts, especially with homes that have been listed for prolonged periods.

Short-term, buyers might find this period advantageous to enter the market, but the long-term stability will depend heavily on broader economic factors, including further inflation trends and policy decisions by the Fed. Retail investors should monitor these indicators closely as they could impact housing-related stocks and REITs (Real Estate Investment Trusts).

Market Research Analyst

The dynamics of the housing market are shifting with the latest trends in mortgage rates and housing supply. The decline in mortgage rates to 6.85% from the peak of 7.5% signifies improved affordability, which is important given the historically high home prices. The report notes that this increased affordability has given buyers a window of opportunity, but it's essential to understand the broader market implications.

The rising inventory, up 7% year-over-year, provides more options for buyers, but the fact that over 60% of homes have been listed for more than 30 days without going under contract is a sign of potential market saturation. This could lead to downward pressure on prices, particularly for less desirable homes. Buyers might find value deals, especially if they are willing to negotiate terms such as repairs and closing costs.

For investors, this situation suggests a transitional market. The increased supply and slightly lower rates might stabilize prices in the short term but could lead to increased competition if rates drop further in the future. Investors should consider potential shifts in buyer behavior and market demand and how these might influence real estate stocks and the broader market economy.

Homebuyers on a $3,000 monthly budget have gained over $20,000 in purchasing power since mortgage rates peaked in the spring

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — A homebuyer on a $3,000 monthly budget can afford a $447,750 home with a 6.85% mortgage rate, the daily average as of July 11, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That buyer has gained $22,500 in purchasing power since mortgage rates hit a five-month peak in April, when they could have bought a $425,500 home with an average rate of 7.5%.

Mortgage rates dropped to their lowest level since March on Thursday’s inflation report, and the supply of homes for sale is rising, giving buyers a sweet spot before competition picks up.

To look at affordability another way, the monthly mortgage payment on the typical U.S. home—which costs roughly $400,000—is $2,647 with the current 6.85% rate. That’s down nearly $200 from $2,814 with a 7.5% rate.

The drop in mortgage rates comes after the latest CPI report showed that inflation is cooling faster than expected and upped the chances that the Fed will cut interest rates by September.

It’s likely that mortgage rates will continue declining slightly in advance of the expected interest-rate cuts, but it’s unlikely they’ll drop below 6% before the end of the year.

Even though mortgage rates are declining, sale prices are still at record highs and total housing costs are historically high. Prices are unlikely to drop meaningfully in the near future.

The other piece of good news for buyers: More homes to choose from

Rising inventory is also promising for buyers: 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.

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. 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.

Homes are also sitting on the market longer than usual. More than 60% of homes that were on the market in May had been listed for at least 30 days without going under contract, up from 50% two years earlier. Two in five (40%) homes had been listed for at least two months without going under contract, up from 28% two years earlier.

The uptick in homes for sale, along with the fact that many listings are growing stale, means many of the less-desirable homes on the market are having a hard time finding a buyer. That gives homebuyers in some places a chance to get a home for under the asking price and negotiate for other money savers, like home repairs or help with closing costs.

“Now is a good time–at least compared to the recent past–for serious house hunters to get under contract on a home,” said 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. 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.”

To view the full report, please visit: https://www.redfin.com/news/mortgage-rates-fall-payments-down

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240712751925/en/

Redfin Journalist Services:

Angela Cherry

press@redfin.com

Source: Redfin

FAQ

How much purchasing power have homebuyers gained as mortgage rates dropped?

Homebuyers have gained $22,500 in purchasing power as mortgage rates dropped to 6.85% from 7.5%.

What is the current average mortgage rate according to Redfin's report?

The current average mortgage rate is 6.85% as of July 11, according to Redfin's report.

How has the supply of homes for sale changed 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.

What does Redfin say about the likelihood of further mortgage rate drops?

Redfin suggests that mortgage rates are likely to decline slightly in advance of the expected Fed rate cut, but are unlikely to drop below 6% before the end of the year.

What opportunity does Redfin see for homebuyers in the current market?

Redfin sees a window of opportunity for homebuyers due to declining mortgage rates, rising supply, and many properties sitting longer on the market, allowing for better negotiations.