Homebuyers can now afford $400,000 homes with $2,500 monthly budgets for the first time in four months, according to a new report from Redfin.
Now that mortgage rates have dropped below 6%, potential buyers are able to spend more than they previously would have been able to. Redfin notes that buyers with a $2,500 budget can now spend $35,000 more on a home than they could have in November, when the interest rate was over 7%.
It seems buyers have taken notice of this increase in affordability: according to Redfin’s Homebuyer Demand Index, requests for tours and services from Redfin agents are up 19%. Sellers are rejoining the market as well, with new listings declining only 17% year over year (the smallest YOY decline in months). Furthermore, 37% of new listings in January accepted an offer within two weeks, which is the highest percentage since July.
“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,” said Redfin economics research lead Chen Zhao. “The Fed’s interest-rate hike this week, for example, is both promising and disappointing. The Fed hiked rate at a 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.”
Additionally, Redfin found that the median home sale price in the U.S. is up 0.8% to $346,875 year over year, while median sale prices actually fell year-over-year in many of the country’s largest metros. Sale-to-list price ratio also fell from 100.1% a year ago to 97.7%, the lowest percentage since March 2020.