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Homebuyers, rejoice! You can afford to bid on a more expensive home now that mortgage rates have fallen below 6%

home prices drop, for sale signHome prices have dropped, even in some of the most popular areas.

Justin Sullivan/ Staff/ Getty Images

  • The US housing market is warming back up because of declining mortgage rates.
  • The average for 30-year mortgage rates have just dipped below 6% for the first time in months.
  • One economist says there are still headwinds that the market needs to navigate.

It’s beginning to look like it’s going to be a very busy spring season in the real estate world. 

Mortgage rates dipped below 6% on February 2, according to Mortgage Daily News, marking their lowest reading since September 2022. The declining mortgage rates have helped to bring buyers back to the market and bolster purchasing power.

On top of the additional foot traffic, homebuyers can also afford to purchase more expensive homes now that mortgages are getting cheaper. A recent report from Redfin found that people with a monthly budget of $2,500 can now afford to buy a $400,000 home. That’s about $35,000 more than they could have spent in November when interest rates were hovering near 7%, the report said. 

Altogether, Redfin’s economics research lead Chen Zhao said in the report that these factors could inspire “homebuyers and sellers to gradually return to the market by springtime.” 

At least 28 million people say they plan to buy a home in 2023, according to NerdWallet’s latest homebuyer survey. People like Justin Moore, 50, who lives in Florida with his wife, told Insider that the declining mortgage rates have motivated him to put in more offers on homes after taking a break from house hunting between December and January since he’s tired of renting and “living in someone else’s house.” 

The market seems to be adjusting to some of this movement as Redfin’s Homebuyer Demand Index — which measures the frequency of home tour requests and other home buying activity — is up 19% since its October low. Meanwhile, newly listed homes are getting more attention from buyers and 37% of these homes are accepting offers within the first two weeks, the brokerage said. 

Inventory levels are also starting to tick up in many markets across the country at a time when home sellers are starting to drop their prices. 

“There has been a massive market shift,” Alexandra Shupe, a real estate agent in Brevard County, Florida, told Insider about her market. “We went from sellers controlling everything, to now being more of a neutral, and even almost a buyer’s market.” 

For example, Redfin found that new listings were up 23% for the four weekends ending on January 29 when compared to the same period in 2022. At the same time, an average of 5.6% of homes listed dropped their price to attract a buyer, up from 2.2% the year before. 

The amount of new listings has also increased the market’s total months of supply, which measures how long it would take all of the available inventory to sell out. The US market currently has about 4.6 months of supply compared to 2.2 months of supply at this time last year. 

However, Zhao cautioned that there are still economic headwinds that could derail any potential momentum that homebuyers are building. 

One issue the market is still grappling with is the Federal Reserve’s interest rate hikes, Zhao said. The central bank raised interest rates by a quarter of a point on February 1, which was a much less aggressive rate hike than previously expected. But, chairman Jerome Powell said that “ongoing rate hikes” were necessary to tame inflation, the New York Times reported.

Zhao said the ongoing rate hikes will “likely prevent the steep mortgage-rate decline that some optimistic buyers have been waiting for.”

Read the original article on Business Insider