The average US homebuyer has gained $40,000 in buying power in the last 3 months as mortgage rates cool

Trying to time the housing market to lock in a low mortgage rate is a "waste of energy", Redfin's chief economist said.

• Homebuyers have gained more purchasing power as mortgage rates have edged lower.
• A homebuyer with a $3,000 monthly housing budget can afford a $453,000 home, Redfin said.
• That's due to a steady decline in mortgage rates, with the 30-year fixed rate hovering around 6.7%.

The average US homebuyer can afford more than they could have three months ago, part of a trend that signals the housing market could be healing after a difficult 2023.

Homebuyers with a $3,000 budget for their monthly mortgage payments can now afford a $453,000 home, according to a new Redfin analysis. That's thanks to the recent decline in mortgage rates, which has taken the cost of borrowing on a 30-year fixed mortgage to around 6.7%, Freddie Mac data shows.

That's given buyers around $40,000 in extra purchasing power when comparing to conditions in October. Then, homebuyers with a $3,000 monthly budget were able to purchase just a $416,000 home, given the mortgage rate of around 7.8%. 

The median US home price is $363,000, according to Redfin data. With rates hovering around 6.7%, that means the typical homebuyer will pay $2,545 on their monthly mortgage payment – down from the median monthly payment of $2,713 when mortgage rates hovered around 7.8%.

Mortgage borrowing costs have been steadily declining in recent months, largely due to expectations that the Fed will begin trimming interest rates this year. Markets expect the Fed to cut interest rates around six times this year, according to the CME FedWatch tool, an optimistic bet that implies rates potentially falling below 4% by the end of the year. The Fed itself has indicated that just three rate cuts are on the table this year. 

Lower borrowing costs since the end of 2023 have brought some much-needed relief to the US housing market. Sales, which were frozen over last year, are beginning to pick up steam, a sign that improved affordability has more buyers wading back into the market and more sellers listing their homes as they give up trying to time the market and list their homes. 

Prospective buyers shouldn't try to time interest rates before entering the housing market, Redfin chief economist Daryl Fairweather said.

Experts say that the days of low-single digit mortgage rates are over, and when mortgage rates fall below a key threshold, that could attract a huge wave of buyers to the housing market, potentially pushing up prices, Fairweather previously told Business Insider.

"My advice to serious house hunters: Trying to time the market around mortgage rates is probably a waste of energy, as affordability is unlikely to change meaningfully in the next several months," Fairweather said in a statement on Monday. "Timing the market mattered in 2021, when we were in a golden window of record-low rates, but that window is closed," she added.

Redfin is predicting that affordability will only improve slightly in 2024 as rates ease and buyers begin trickling back into the market. Home sales could increase 5% to 4.3 million in 2024. Home prices, meanwhile, are set to fall just 1% this year, the real estate listings site previously estimated.