Mortgage rates are lower, home prices are falling, and there is more supply on the market. All of this leads to increased affordability for today’s homebuyers. But for first-time buyers, saving for a down payment remains the biggest hurdle.
Nationally, prices are essentially flat compared to a year ago, according to Parkle Lab, which tracks U.S. home prices daily. It fell into negative territory at the beginning of this month and is currently only up 0.3% from the previous year.
The latest S&P Cotality Case-Shiller Home Price Index, which reflects pricing from October, showed wide disparities among metropolitan markets. Chicago is featured among the top 20 markets. New York; and Cleveland benefited the most. Meanwhile, prices fell into negative territory in eight cities, including Tampa, Florida. Phoenix; and Dallas are seeing the biggest losses.
“Nationwide home prices continue to lag behind consumer inflation,” said Nicholas Godek, head of fixed income trading and products at S&P Dow Jones. “This is approximately 1.8 percentage points higher than the latest house price growth rate. In real terms, this gap means that inflation-adjusted home values have fallen slightly over the past year.” Listed in index and release.
Mortgage interest rates are also falling.
The average interest rate on a 30-year fixed mortgage is currently 6.19%, according to Mortgage News Daily. This year it started well above 7%. This reduction means significant savings for homebuyers.
For example, buyers who put 20% down on a $410,000 home (right around the national median) will now pay an average of $200 less per month than they did a year ago. Lower prices and lower interest rates are changing the calculus of what first-time buyers can afford.
According to Realtor.com, the typical homebuyer currently needs seven years to save for a down payment. While this is down from the recent 12-year peak in 2022, it is still about twice its pre-pandemic level, in part because personal savings rates are much lower than in 2020.
Down payments continue to be the biggest hurdle to homeownership, dropping to 65% in the second half of this year, the lowest level since 2019, according to the U.S. Census.
However, the improving supply of homes for sale is adding momentum to the market. According to Realtor.com, active listings are currently up about 12% compared to a year ago, but are still 6% lower than before the pandemic.
And buyers seem to be responding, too. The number of pending home sales, which counts existing homes under contract, exceeded expectations in November. According to the National Association of Realtors, prices are up 3.3% from October 2024 and 2.6% from November 2024, the highest level in nearly three years.
“Improving home affordability, with lower mortgage rates and wage growth outpacing home prices, is helping buyers test the market. More inventory options compared to last year are also drawing more buyers to the market,” Realtors chief economist Lawrence Yun said in a release.
