Homebuyers are getting some relief in 2024 as mortgage rates recede from their 20-year high point of last October.
A homebuyer with a $3,000 monthly budget has gained nearly $40,000 in purchasing power since October, according to a new Redfin report. Indeed, with a 6.7% mortgage rate, the prospective buyer with a $3,000 budget can afford a $453,000 home. In October, a buyer with the same monthly budget and a 7.8% mortgage rate could have afforded a $416,000 home.
In other words, it now takes a monthly payment of $2,545 to afford the typical U.S. home, which costs $362,225, while it took $2,713 in monthly payments (or nearly $200 more) when rates were at 7.8%.
Mortgage rates stabilized last week, averaging 6.69% as of Jan. 25, according to Freddie Mac. Redfin agents report that buyers have come to terms with rates in the 6s, even if they’re double the historically low costs that buyers had during the early stages of the COVID-19 pandemic.
“Bidding wars are picking up as mortgage rates decline and inventory stays low,” Redfin agent Shoshana Godwin told Redfin. “I’ve seen a few homes get 15-plus offers recently, and one got more than 30.
“Late last year, many listings sat on the market as buyers sat on the sidelines, hoping for rates to drop,” said Godwin, a Seattle-based agent. “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.”
Redfin doesn’t expect sub-6% rates in 2024
Mortgage rates will decline in 2024, but it won’t be a straightforward path, Redfin economists warn. This week’s meeting of the Federal Open Market Committee (FOMC) will provide more guidance regarding the Fed’s expected rate cuts. As of Monday, 97.9% of investors are anticipating the benchmark interest rate to remain the same after Wednesday’s FOMC meeting, according to the CME Group’s FedWatch tool. But 48.6% of investors have priced in a cut of at least a quarter point in March.
A cut in the benchmark interest rate should spur mortgage rates to come down a little but not a lot, Redfin economists said.
“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,” Redfin chief economist Daryl Fairweather said in a statement.
“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. Timing the market mattered in 2021, when we were in a golden window of record-low rates – but that window is closed.”
