Mortgage rates are lower, home prices are falling, and there is more supply on the market for sale. All of this translates into improved affordability for today's homebuyers. However, saving for a down payment remains the biggest hurdle for first-time buyers.
Prices nationwide are virtually unchanged compared to last year, according to Parcl Labs, which conducts daily studies of U.S. real estate prices. At the beginning of the month they fell into negative territory and are now only 0.3% above the previous year's value.
The latest S&P Cotality Case-Shiller home price index, reflecting October prices, showed wide differences between metropolitan markets. The top 20 markets include Chicago; New York; and Cleveland had the largest increases. Eight cities now recorded negative prices: Tampa, Florida; Phoenix; and Dallas recorded the largest losses.
“National housing prices continue to lag consumer inflation, with the October CPI estimated at about 3.1% (based on a preliminary index released by the U.S. Treasury due to the federal data blackout) – about 1.8 percentage points higher than recent housing appreciation. In real terms, this gap implies a slight decline in inflation-adjusted housing values over the past year,” said Nicholas Godec, head of fixed income and commodities at S&P Dow Jones Indices, in a press release.
Mortgage interest rates are also falling.
The average 30-year fixed-rate mortgage is currently 6.19%, according to Mortgage News Daily. It started this year at well over 7%. This decline represents significant savings for homebuyers.
For example, if a buyer puts down a 20% down payment on a home valued at $410,000 (roughly the national median), the average monthly payment today will be $200 lower than it was a year ago. Lower prices and lower rates are changing the equation about what first-time buyers can afford.
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According to Realtor.com, the typical home buyer now needs seven years to save for a down payment. That's down from the recent 12-year peak in 2022, but still about double pre-pandemic levels, in part because the personal savings rate is so much lower than in 2020.
Down payments remain the biggest hurdle to homeownership, falling to 65% in the second half of this year, the lowest level since 2019, according to the U.S. Census.
But an improving supply of homes for sale is adding dynamism to the market. According to Realtor.com, active listings are now about 12% higher than a year ago, but still 6% lower than before the pandemic.
And buyers seem to be responding. Pending home sales, which take into account signed contracts on existing homes, rose more than expected in November. They were 3.3% higher than in October, 2.6% higher than November 2024 and reached their highest level in nearly three years, according to the National Association of Realtors.
“Improving housing affordability — driven by lower mortgage rates and faster wage growth than home prices — is helping buyers test the market. A greater selection of homes compared to last year is also attracting more buyers to the market,” Realtors chief economist Lawrence Yun said in a news release.