Lower Mortgage Rates Increase Homebuyers’ Purchasing Power

On Monday, Redfin reported that a homebuyer with a $3,000 monthly budget has gained nearly $40,000 in purchasing power since mortgage rates peaked last year in the fall.

A $3,000 monthly budget will buy a $453,000 home with a 6.7% mortgage rate, approximately this week’s average, Redfin said. This is up from the $416,000 home the same buyer could have purchased in October 2023 with an average 7.8% mortgage.

From another perspective on affordability, Redfin points out that the monthly mortgage payment on the typical US home, which costs roughly $363,000, is $2,545 with a 6.7% mortgage rate. The monthly payment was nearly $200 higher than when the rates were at 7.8% ($2,713).

Commenting on the results of the report, Redfin Chief Economist Daryl Fairweather 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. 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.”