What the fall housing market looks like for buyers

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

Buyers must earn $115,000 to afford the typical home in the US, according to in a new report from Redfin, an online real estate brokerage. This is down 1% from a year ago and represents the first decline since 2020.

Housing payments saw their biggest fall in four years, Also found Redfin. The average mortgage payment was $2,534 during the four weeks ended Sept. 15, down 2.7 percent from a year ago.

Both declines stem from lower mortgage rates, said Daryl Fairweather, chief economist at Redfin.

As of Sept. 19, the average 30-year fixed-rate mortgage is 6.09%, up from 6.20% the week before; according to in Freddie Mac data through the Fed. Interest rates peaked this year at 7.22% on May 2.

“The only reason mortgage payments are going down is because of the interest rate effect,” Fairweather said.

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Challenges remain: The typical household earns 27% less than they need to afford a home, about $84,000 a year, according to Redfin data. Housing prices are also high. The median asking price for newly listed homes for sale is $398,475, up 5.4% from a year ago, Redfin found.

While housing overall is still out of reach for most buyers, “it’s as good as it gets,” said Orphe Divounguy, senior economist at Zillow, as the market generally sees lower mortgage rates, more inventory and less buyer competition.

Here’s what shoppers can expect in the coming months.

Lower mortgage rates provide “a great opportunity for buyers who have been waiting,” Divounguy said.

Just because the Federal Reserve has lowered interest rates, it doesn’t necessarily guarantee that mortgage rates will continue to decline,” he said.

While mortgage rates are partly influenced by Fed policy, they are also tied to Treasury yields and other economic data.

“Mortgage rates will follow the path of the economy,” said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.

“If the economy shows signs of weakening, interest rates will go down,” Cohn said. “If we see the opposite, and that the economy is moving and employment is strengthening, it is very likely that the rates will go up.”

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

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

Meanwhile, homebuilder confidence in the new single-family home market improved in September, according to to the National Association of Home Builders or NAHB. Its survey also shows the share of manufacturers cutting prices in September was 32%, down one point. It’s the first drop since April, according to the NAHB.

“That tells me that some builders are probably starting to see some increase in foot traffic,” Divounguy said, and that the market could become competitive again.

Price growth will depend on the level of existing housing stock, said Robert Dietz, chief economist at NAHB.

“Existing housing inventory is expected to increase as the mortgage rate lock is reduced, also putting some downward pressure on prices,” Dietz said.

The housing market is not going to get worse overall over the next 12 months, Fairweather said. If house hunters are discouraged because they haven’t found a home, they may have a better chance next year when there are more listings, Fairweather said.

But they are at risk of higher competition, he warned.

“You’re trading one difficulty for another,” Fairweather said.

If mortgage rates fall further next year, the number of homes for sale may increase. Most homeowners take out loans at historically low mortgage rates, creating a so-called “lock-in” or “golden handcuff” effect where they don’t want to sell and finance a new home at a higher rate.

“We’ll probably see more people buying or selling to buy again,” Fairweather said, because high borrowing costs have held them back.