House Hunters Are Back as Mortgage Payments Decline First Time in 4 Years

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Residential property buyers are reentering the market, encouraged by the recent decline in mortgage payments and rates, according to real estate brokerage firm Redfin.

“The median U.S. monthly mortgage payment was $2,587 during the four weeks ending Aug. 18, its lowest level since February and down 0.1 percent from a year earlier,” an Aug. 18 press release stated. This is the first time in four years that monthly housing payments posted “any decline at all.”

Redfin attributed this fall to declining mortgage rates that have dropped to 6.5 percent—the lowest level in 15 months. Since the beginning of August, rates have been holding steady at this level, attracting buyers to the market, the report said.

“Some would-be buyers who had been waiting for rates to decline more have realized that’s unlikely to happen anytime soon, and others are gaining confidence that rates won’t suddenly pop up before they put an offer on a home.”

Redfin’s Homebuyer Demand Index, which measures requests for home tours and other buying services, increased by 4 percent from the previous week to its highest level in two months.

However, the uptick in home tours “hasn’t yet translated to more sales,” the brokerage said. Home prices continue to remain near “record levels,” and are up 3.6 percent from a year ago. Prices rose by 0.2 percent for the second consecutive month in July.

Prices are rising—albeit at a slower pace—since the housing shortage continues to afflict the market.

“There aren’t enough sellers listing their homes to cause prices to fall and there aren’t enough buyers to create competition to drive prices up significantly,” said Sheharyar Bokhari, a senior economist at the firm.

“Relatively low sales and gradual price increases will remain the status quo each month until one of those things changes.”

Gregory Eubanks, a Redfin agent in Los Angeles, California, said that clients have been getting more excited about buying or selling a home over the past two weeks. He attributed this change partly to speculation that the U.S. Federal Reserve would cut its benchmark interest rates in September.

Some people are still waiting for mortgage rates to drop further to make a move in the market, he said.

The Fed is set to hold its meeting on Sept. 17–18. The majority of interest rate traders are expecting the agency to cut rates by at least 25 basis points, with a minority hoping for a 50 basis-point reduction.

Builder Confidence, Mortgage Rates

Builder confidence in the housing market is also on the decline, with a “lack of affordability and buyer hesitation stemming from elevated interest rates and high home prices” contributing to the fall, according to the National Association of Home Builders (NAHB).

The NAHB/Wells Fargo Housing Market Index fell by two points in July, to its lowest level since December. Almost a third of the builders cut home prices in a bid to boost sales. A majority of them used sales incentives to lure prospective buyers.

“The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing,” said NAHB Chairman Carl Harris.

Robert Dietz, chief economist at the organization, expects builder sentiment to improve over the coming months, pointing to mortgage rates falling “markedly” in the second week of this month and potential Fed rate cuts ahead.

The average interest rate on a 30-year fixed-rate mortgage has fallen from its peak of 7.22 percent in May to 6.49 percent for the week ending Aug. 15, according to data from Freddie Mac.

Mortgage rates are over half a percent lower compared to the same time last year, said Sam Khater, chief economist at the firm.

“In 2023, the 30-year fixed-rate mortgage nearly hit 8 percent, slamming the brakes on the housing market. Now, the 30-year fixed-rate hovers around 6.5 percent and will likely trend down in the coming months as inflation continues to slow. Lower rates are good news for potential buyers and sellers alike,” he said.