As Mortgage Rates Dip, Home Affordability Increases
Redfin reported on Thursday (2-2-23) that for the first time in the past four months, a homebuyer on a $2,500 monthly budget can afford a $400,000 home. This is a result of the average daily mortgage rate declining to 5.99%, the first sub-6% average since mid-September, according to Mortgage News Daily.
To look at the change in affordability another way, a buyer with $2,500 monthly budget can afford to spend about $35,000 more on a home than they could when rates peaked above 7% in November. However, a buyer on that $2,500 budget still has about $95,000 less in spending power that a year ago, when mortgage rates were around 3.5%. Nevertheless, the lower rate is a relief for buyers who had been waiting for rates to move lower.
Adding analysis to this report, Redfin’s Economic Research Lead Dr. Chen Zhao said:
“We expect more homebuyers and sellers to gradually return to the market by springtime, but mixed economic news and mixed reactions from the market mean the recovery will be uneven. The Fed’s interest-hike this week, for example, is both promising and disappointing. The Fed hiked rated as slower pace than last year, which means mortgage rates are unlikely to rise further. But it also signaled ongoing rate increases to fight inflation, which will likely prevent the steep mortgage-rate decline that some optimistic buyers have been waiting for.”
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