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The recent drop in mortgage rates has increased homebuyers’ purchasing power by five figures, according to a Redfin market report published on Monday.
A homebuyer with a $3,000 monthly budget can now afford a $453,000 home — $40,000 more than they could in October when mortgage rates reached an average peak of 7.8 percent. In addition to expanding buyers’ budgets, the drop in rates from an average of 7.8 percent to 6.7 percent has reduced the typical mortgage payment on a median-priced home from $2,713 to $2,545.
Seattle-based Redfin Premier Agent Shoshana Godwin said declining mortgage rates have reignited bidding wars. Godwin said buyers have accepted the fact that rates will never reach 2020’s record lows, and the best chance to secure a good deal is now — not when rates drop again.
“Bidding wars are picking up as mortgage rates decline and inventory stays low. I’ve seen a few homes get 15-plus offers recently, and one got more than 30,” she said. “Late last year, many listings sat on the market as buyers sat on the sidelines, hoping for rates to drop.”
“Now, buyers are snapping up homes because even though rates haven’t plummeted, people are realizing that the longer they wait to buy a home, the more competition they’re likely to face,” she added.
Daryl Fairweather
Redfin Chief Economist Daryl Fairweather said homebuyers should follow Godwin’s advice to purchase now.
“My advice to serious house hunters: Trying to time the market around mortgage rates is probably a waste of energy, as affordability is unlikely to change meaningfully in the next several months,” she said in a written statement.
Although mortgage rates are poised to decline in the coming months, it won’t be in a linear fashion. Fairweather said the Federal Reserve’s upcoming meeting on Jan. 30 will provide insight on when cuts could begin, with March being the earliest start date.
However, she said cuts will do little to change mortgage rates for most of the year. With that in mind, she said buyers should keep their personal finances top of mind — not Fed strategy.
“Instead, buyers should consider their own personal and financial circumstances: What matters most is whether the home meets your needs long term and whether you can afford it,” she said. “Timing the market mattered in 2021 when we were in a golden window of record-low rates— but that window is closed.”
