Is It Time for a Move? Monthly Housing Payments Dropped the Most in These Top Cities

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It may not be by much, but payments are dropping around the country. 

If you’ve just received a job transfer or must move for some other reason, it may be a wee bit easier to afford a house this year than it was last year. Now, to be clear: Housing prices and interest rates remain challenging in most markets. However, there are signs that both are softening.

Where monthly mortgage payments are dropping fastest tends to be in areas where they rose most dramatically. Here, we’re going to look at where the housing market appears to be coming back to Earth and examine why it’s happening.

Where monthly payments are inching toward normal

According to Redfin, since October 2022, the monthly median house payment has dropped by 7%. The most significant drops have been in San Francisco, Pittsburgh, Seattle, and Oakland.

Monthly payments ultimately come down to the amount a buyer pays for a property. Here, RE/MAX provides an illustration of how much median prices dropped in major markets between December 2021 and December 2022:

Impact of a price drop

Granted, if you’re on a budget, the difference between paying $430,000 and $415,000 may seem negligible. But here’s what it means in terms of monthly payment, even if interest rates remained the same.

Let’s say you put 20% down and the interest rate on a 30-year fixed mortgage is 6.7%.

Paying $430,000 for the property would require a down payment of $86,000, leaving you with $344,000 to finance. Principal and interest payments on the house would run $2,220 per month, and you would pay a total of $455,112 in interest over the life of the loan.Paying $415,000 instead would require a down payment of $83,000, and leave you with $332,000 to finance. Principal and interest payments would now run $2,142, and you would pay a total of $439,236 in interest by the time the loan is paid in full.

The slight softening in price would save you nearly $16,000 in interest.

Add a drop in interest rate

To be sure, there have been no dramatic drops in housing prices, although interest rates have inched down over the past few months. Since hitting their recent peak in May 2022, interest rates have fallen ever so slowly. Again, an interest rate reduction of 1% may not seem like anything to write home about, but it can make all the difference in a monthly mortgage payment, particularly when coupled with a slightly lower home price.

Here’s the difference in monthly payments after a reduction in both price and interest rate:

By paying $15,000 less for a home and snagging an interest rate 1% lower, the buyer will save roughly $300 per month and more than $95,000 in total interest.

Two more factors

At least two other factors have crept into play. They are:

1. Inventory

Home sales are driven by supply and demand. Red-hot sales were due, in part, to high demand and low inventory. That appears to be turning around, at least in some markets. These examples compare a month’s supply of inventory in December 2021 to a month’s supply in December 2022.

Salt Lake City, Utah: Inventory increased by 532.3% year over year.Raleigh, North Carolina: Inventory increased by 530%.Nashville, Tennessee: Inventory jumped by 377.1%.

2. Days on market

For months, homes scarcely had time to hit the market before they were sold. Today, they are lingering a bit longer. For example:

Tampa, Florida: In December 2021, the average home in Tampa was on the market for 20 days. By December 2022, it had stretched to 55 days.Bozeman, Montana: The average home was snapped up in 31 days in 2021. By the end of 2022, it was 75 days.Denver, Colorado: Days on market more than doubled in one year, from 21 days to 44 days.

There’s no getting around reality. Homes are still more expensive than they were prior to COVID-19 and monthly payments remain too high for many households to manage. Still, if we’re looking for the subtle signs of a cooling market, slightly lower mortgage payments fit the bill.

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