Mortgage rates are lower, housing prices are falling, and there is more supply of products for sale in the market. All of this helps improve affordability for today’s buyers. However, saving for a down payment remains the biggest obstacle for first-time buyers.
Prices nationwide are basically stable compared to where they were a year ago, according to Parcl Labs, which conducts daily studies of U.S. housing prices. They fell into negative territory at the start of the month and are now only 0.3% higher year-on-year.
The latest S&P Cotality Case-Shiller home price index, which reflects October prices, showed wide disparities between metropolitan markets. Among the top 20 markets highlighted, Chicago; New York; and Cleveland had the largest gains. Meanwhile, eight cities posted prices in negative territory, including Tampa, Florida; Phoenix; and Dallas has the biggest losses.
“National housing prices also continue to lag consumer inflation, as October CPI is estimated at around 3.1% (based on a preliminary index announced by the U.S. Treasury due to the federal data shutdown) – about 1.8 percentage points higher than the last housing appreciation. In real terms, this gap implies a slight decline in inflation-adjusted home values over the past year,” Nicholas Godec, head of fixed income and commodities at S&P Dow Jones Indices, said in a statement.
Mortgage rates are also falling.
The average for a 30-year fixed mortgage is currently 6.19%, according to Mortgage News Daily. It started this year well above 7%. This drop means significant savings for home buyers.
For example, for a buyer who puts 20% down on a $410,000 home (near the national median), the monthly payment today is $200 less on average than it would have been a year ago. Falling prices and interest rates are changing the calculations about what first-time buyers can afford.
The typical buyer now needs seven years to save for a down payment, according to Realtor.com. That’s down from the recent 12-year high reached in 2022, but still about double pre-pandemic levels, in part because the personal savings rate is much lower than it was in 2020.
Down payments continue to be the biggest barrier to homeownership, which in the second half of this year fell to 65%, according to the U.S. Census, the lowest level since 2019.
But the improving supply of homes for sale is providing momentum to the market. Active listings are now about 12% higher than they were a year ago, according to Realtor.com, but still 6% lower than they were before the pandemic.
And buyers seem to be responding. Pending home sales, which count signed contracts on existing homes, rose more than expected in November. They were 3.3% higher than in October, 2.6% higher than in November 2024 and reached their highest level in almost three years, according to the National Association of Realtors.
“Improving housing affordability — driven by falling mortgage rates and wage growth rising faster than home prices — is helping buyers test the market. A greater selection of inventory compared to last year is also drawing more buyers into the market,” Lawrence Yun, Realtors’ chief economist, said in a statement.