Mortgage rate drops equate to serious savings

Mortgage rate declines have made buying a home “affordable” again at the national level (meaning monthly payments generally take less than one-third of median household income), assuming a buyer puts 20% down and before taxes and insurance are accounted for. Nationwide, the monthly payment on a typical home purchase has fallen by more than $100 since a peak in May. That drop is more than $300 a month in the ultraexpensive San Francisco metro area.

Lower rates also make it easier for buyers to qualify for a mortgage on more of the inventory listed in a given area, functionally increasing the choices available to them.

Home shoppers gain choices, bargaining power

Beyond lower costs, a number of metrics are moving in buyers’ favor. The Zillow market heat index shifted from being in favor of sellers into neutral territory in July. For the past two years, sellers held their edge nationally until October.

Homes are taking longer to sell than in recent history, but shorter than in pre-pandemic times. Homes that sold in August took 20 days to go pending, two more than in July, but about six days faster than at this time of year before the pandemic. And while inventory growth has slowed, nearly 1.18 million homes are on the market, more than any month since September 2020.

Added interest could extend summertime competition

Lower rates could stall or slow the cooldown in housing market activity that typically takes place this time of year, because right now buyers are more likely to be motivated by lower rates than sellers are.

Spring is normally the prime time to list because sellers often want to make sure they are in their new home before the school year and fall holidays start. Most homeowners (80%) are influenced to sell by life events, such as an addition to the family or a new job, and not necessarily by optimizing the mortgage rate on their next home, according to Zillow surveys.

Some signals are already pointing to an altered trajectory in the housing market. The share of listings on Zillow with a price cut ticked down from July to August, reversing an upward trend of rising every month since March. Just under 26% of homes on the market had a price cut in August. That’s relatively high for this time of year, but not a record, as seen in recent months.

Home values

This month, the typical home in the US was $362,143. The typical monthly mortgage payment, assuming 20% down, was $1,827. Lower mortgage rates pushed monthly mortgage costs down 3.4% from July to August.

• Home values climbed month-over-month in 9 of the 50 largest metro areas in August. Gains were biggest in Buffalo (0.7%), New York (0.6%), Providence (0.4%), Hartford (0.3%), and Philadelphia (0.3%).
• Home values fell, on a monthly basis, in 37 major metro areas. The largest monthly drops were in San Francisco (-1.3%), San Jose (-1.1%), Austin (-1%), Denver (-0.7%), and New Orleans (-0.6%).
• Home values are up from year-ago levels in 44 of the 50 largest metro areas. Annual price gains are highest in San Jose (9.1%), Hartford (8%), Providence (7.1%), New York (7%), and San Diego (6.2%).
• Home values are down from year-ago levels in 5 major metro areas. The largest drops were in New Orleans (-4.6%), Austin (-4.6%), San Antonio (-2.9%), Birmingham (-0.9%), and Dallas (-0.4%).
• The typical mortgage payment is down 2.9% from last year and has increased by 103.8% since pre-pandemic.

Inventory & new listings

• New listings decreased by 1.1% month-over-month in August.
• New listings increased by 0.8% this month compared to last year.
• New listings are 21.3% lower than pre-pandemic levels.
• For-sale inventory (the number of listings active at any time during the month) in August increased by 0.2% from last month.
• There were 22.1% more for-sale listings active in August compared to last year.
• Inventory levels are -30.8% lower than pre-pandemic levels for the month.

Price cuts & share sold above list

• 25.9% of listings in August had a price cut, compared to 26.2% in July and 23.4% in August 2023.
• 33.4% of homes sold above their list price last month. That’s compared to 35.4% in June and 39.1% in July of 2023.

Newly Pending Sales

• Newly pending listings decreased by 5% in August from the prior month.
• Newly pending listings decreased by 2.9% from last year.
• Median days to pending, the typical time since initial list date for homes that went under contract in a month, is at 20 days in August, up 2 days since last month.
• Median days to pending increased by 7 days from last year.

Market Heat Index

• Zillow’s market heat index shows the nation is currently a neutral market.
• The strongest seller’s markets in the country are Buffalo, Hartford, San Jose, Boston, and New York.
• The strongest buyer’s markets in the country are New Orleans, Miami, Jacksonville, Austin, and Tampa.

Rents

• Asking rents increased by 0.2% month-over-month in August. The pre-pandemic average for this time of year is 0.4%.
• Rents are now up 3.4% from last year.
• Rents fell, on a monthly basis, in 2 major metro areas – Austin (-0.4%) and Boston (-0.1%).
• Rents are up from year-ago levels in 49 of the 50 largest metro areas. Annual rent increases are highest in Hartford (7.7%), Cleveland (7.2%), Louisville (7.1%), Richmond (6.8%), and Virginia Beach (6.6%).