September Market Report: The Fed Speaks, and Why Now’s Still Good for Buyers
The Fed finally made its widely anticipated announcement, cutting interest rates by half a point — more than many were expecting. But as has been noted, it was really always more about the anticipation of that cut. We can, for now, fairly safely expect minor mortgage rate fluctuations, but not big drops.
“For those who are ready to buy now, waiting for larger declines in mortgage rates carries some risk,” says Zillow Senior Economist Orphe Divounguy. “Absent an unexpected deterioration in the labor market, it’s unlikely mortgage rates would decline all that much more.”
But as markets continue to work their way toward some new normalcy, opportunities keep opening at non-traditional times. Rates are hovering lower than they have in 18 months, inventory is slowly reforming, and now there are more homes on the market than there have been since September 2020.
Mortgage rates and rising inventory are the two main reasons your buyer clients have a window of opportunity at this unusual time in the year. Rates, which began falling from their most recent peak in late May, have improved affordability significantly, and competition among buyers could extend into the fall.
“Mortgage rates have fallen to reflect the market’s expectations,” says Zillow Senior Economist Orphe Divounguy, “But we may even see a pull back up soon.”
As a result, more home prices now meet an affordability threshold nationally — that means 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). The monthly payment on a typical U.S. home purchase has fallen by more than $100 since that last peak in May. For reference, the drop calculates to more than $300 a month for the average home in the expensive San Francisco metro area.
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.
After a surge during the last few years, rent growth has returned to the pre-pandemic norms of 4-5%. Rent for a single family rental is up 4.5% year over year, while the typical mortgage payment for a home in the for-sale market is down 2.9% year over year.
“The gap between buying and renting has decreased,” says Divounguy. “So if you’ve been on the fence, the math starts to make a little bit more sense.”
The typical US home in August 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.
More Than 25% of August Listings Saw a Price Cut
25.9% of listings in August had a price cut, compared to 26.2% in July and 23.4% in August 2023.
Statistics courtesy Zillow Research.
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