Mortgage Magic: Buyers Unlock Extra $40,000 As Rates Drop To 6.7%

Homebuyers are getting more for their money now that mortgage rates have dropped to 6.7% — down from nearly 8% in October.

A homebuyer with a $3,000 per month budget can afford a house that costs nearly $40,000 more since mortgage rates peaked last fall, according to a new report from Redfin. A budget of $3,000 per month will buy a $453,000 home with a 6.7% mortgage rate. In October, the same buyer could have purchased a $416,000 home with an average mortgage rate of 7.8%.

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If a homebuyer purchases a typical U.S. home, which costs about $363,000, they'll pay $2,545 per month with a 6.7% mortgage rate. When the rates were at 7.8%, the monthly payment was nearly $200 more at $2,713.

"Bidding wars are picking up as mortgage rates decline and inventory stays low. I've seen a few homes get 15-plus offers recently, and one got more than 30," said Shoshana Godwin, a Redfin Premier agent in Seattle. "Late last year, many listings sat on the market as buyers sat on the sidelines hoping for rates to drop. Now, buyers are snapping up homes because even though rates haven't plummeted, people are realizing that the longer they wait to buy a home, the more competition they're likely to face."

Mortgage rates are likely to end the year lower than they started, but it will be a bumpy road, according to Redfin economists. The company is closely watching next week's Federal Reserve meeting to learn more about how soon it will cut interest rates — it could be as soon as March, but it's likely to be later and it likely won't be a lot.

"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," Redfin Chief Economist Daryl Fairweather said. "Instead, buyers should consider their own personal and financial circumstances: What matters most is whether the home meets your needs long term and whether you can afford it. Timing the market mattered in 2021 when we were in a golden window of record-low rates, but that window has closed."

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