Mortgage interest rates are in a pretty good place this week, rising so minimally that the incline could be easily mistaken for a flat surface. The 30-year fixed-rate mortgage rate rose three basis points, averaging 6.19%. A basis point is one one-hundredth of a percentage point.
Mortgage rates are one piece of the puzzle when it comes to the housing market. Other big variables, like the number of homes for sale and home prices, also influence how friendly the market feels to home buyers. As we kick off the last quarter of 2024, let’s look at where things stand.
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Rates are fairly favorable
Even though we’ve seen a couple weeks’ of rate increases, mortgage interest rates remain the lowest we’ve seen them in just over two years. The last time we had average 30-year rates in the sixes was September 2022. Current rates are also well off the highs we saw last year. Rates are nearly two percentage points below the high of almost 8% hit back in October 2023.
Lower interest rates allow home buyers’ budgets to stretch further. At last year’s peak of 7.79%, a buyer who could swing $2,200 in monthly principal and interest could afford a roughly $278,000 home. But at today’s 6.19%, that same buyer can afford a $318,000 home — an additional $40,000 in buying power.
You might think okay, if I can afford that much more in the 6% range, imagine what I could get if interest rates were even lower. But given current economic conditions, forecasters are predicting rates will only edge down slightly through the end of this year and into 2025. We’re talking going from the very low sixes to the very high fives, which for most will not make a huge difference.
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Inventory is edging upward
A dearth of homes for sale has been an issue for years, but inventory is finally starting to pick up. In August 2024, there were 1.35 million existing homes — a number that doesn’t include new construction — on the market, according to the National Association of Realtors. (August is the most recent data available.) It’s the largest inventory the U.S. has seen since fall 2020, which was, by comparison, a boom time for home sales.
Last time inventory was this high, the number of homes sold per month was more than 40% higher than it is today. At the same time that inventory’s coming back, home sales are relatively slow. One way the NAR measures inventory is months’ supply, which feels sort of like a word problem. This number basically says if no new homes were put on the market and every home currently on the market was sold at the current sales pace, how long would it take for the current inventory to be cleared out?
In August 2024, that came to 4.2 months. Last time inventory was this robust, it would have sold in just 2.6 months. A larger number of homes for sale selling at a slower pace could give buyers more leverage than they’ve had in quite some time.
Prices still a sticking point
More homes being listed, and more listings languishing on the market, should translate to lower home prices. It’s supply and demand, right? If there’s more supply, we should see the price go down. We haven’t really seen that happen though, because as more supply enters the market, there’s plenty of demand to meet it. According to NerdWallet’s annual Home Buyer Report, only 23% of Americans who began 2023 with the intention of buying a home succeeded.
Median existing home prices hit record highs this summer, and though we’ve seen slight month-over-month decreases, prices remain stubbornly high. In August, the median price of an existing home was $416,700, according to NAR data. That complicates affordability. If mortgage interest rates are going down but home prices are going up, how much are lower rates helping?
It’s vital to remember that national-level numbers like the ones we’ve been using here don’t necessarily capture what you’ll see on the ground in any given market. Take median list prices, for example. Realtor.com data from September 2024 looking at the 50 largest U.S. metro areas shows substantial variation. Last month, the median list price in Rochester, New York, was up 13% year over year. Baltimore and Houston saw no change. And in Miami, the median list price dropped more than 12%.
Similarly, what’s going on with the broader housing market — or even your local one — probably doesn’t make as much difference to your individual homebuying choices as what’s going with you. If you’re at a point where you can afford a home that meets your needs in a place where you want to put down roots, you’re in a housing market that works for you.
