What the Fall Housing Market Looks Like for Buyers

While housing affordability remains a challenge for many buyers in the United States, conditions are improving somewhat due to lower mortgage rates.

According to a new report from Redfin, an online real estate brokerage, buyers would need to earn $115,000 to buy a typical home in the United States. That’s down 1% from a year ago and the first decline since 2020.

Redfin also found that home mortgage payments posted their biggest drop in four years. The average mortgage payment was $2,534 during the four weeks ending Sept. 15, down 2.7% from a year ago.

Both declines were due to lower mortgage rates, said Daryl Fairweather, chief economist at Redfin.

As of Sept. 19, the average interest rate on a 30-year fixed mortgage was 6.09%, down from 6.20% the previous week, according to data from Freddie Mac via the Federal Reserve. Rates peaked this year at 7.22% on May 2.

“The only reason mortgage payments are down is the price effect,” Fairweather said.

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Challenges remain: The typical household makes 27% less than what it needs to buy a home, about $84,000 a year, according to Redfin data. And home prices remain high, too. Redfin found that the median asking price for new homes for sale is $398,475, up 5.4% from a year ago.

While home prices generally remain too expensive for most buyers, “this is the best that can happen,” said Orf DeVongoy, chief economist at Zillow, as the overall market sees lower mortgage rates, greater inventory and reduced competition from buyers.

Here's what buyers can expect in the coming months.

Low home loan rates provide a “great opportunity for buyers who have been waiting,” DeVongi said.

Just because the Fed cuts interest rates “doesn't necessarily guarantee that mortgage rates will continue to fall,” he added.

While mortgage rates are influenced in part by Federal Reserve policy, they are also tied to Treasury yields and other economic data.

“Mortgage rates will change with the economy,” said Melissa Cohn, regional vice president of William Ravis Mortgage in New York.

“If the economy shows signs of weakness… interest rates will come down. If we see the opposite, that the economy is slowing down and employment is getting stronger, interest rates will likely rise,” Cohen said.

In addition to lower mortgage rates, the high inventory of homes for sale makes the housing market more favorable for buyers, DeFungi said.

There were 1,350,000 homes for sale by the end of August, up 0.7% from the previous month, according to the National Association of Realtors. Inventory levels were up 22.7% compared to August 2023.

Meanwhile, homebuilders’ confidence in the newly built single-family home market improved in September, according to the National Association of Home Builders, or NAHB. Its survey also shows that the share of builders that cut prices in September was 32%, down one point. That’s the first decline since April, according to the NAHB.

“This tells me that some builders may be starting to see an increase in pedestrian traffic,” and that the market may become competitive again, DeVongi said.

Price growth will depend on the level of existing housing inventory, said Robert Dietz, chief economist at the National Association of Home Builders.

“Existing housing inventory is expected to rise as the impact of mortgage rate stabilization wanes, which puts some downward pressure on prices as well,” Dietz said.

Fairweather said the housing market is not going to deteriorate overall over the next 12 months. If home seekers are frustrated by not finding a home, they may have a better chance next year when there are more listings, he added.

But she warned that they face the risk of intense competition.

“You're replacing one difficulty with another,” Fairweather said.

If mortgage rates continue to fall next year, the number of homes for sale could grow. Most homeowners are sitting on loans at record-low mortgage rates, creating what’s called a “lock-in effect,” or “golden lock-in effect,” where they’re unwilling to sell and finance a new home at a higher price.

“We're likely to see more people buying, or selling with the intention of buying again,” Fairweather said, because high borrowing costs have held them back.