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Home prices are falling in some markets. Read on to find out how it makes homeownership more affordable. [[{“value”:”
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Housing prices spiked during the pandemic as remote work became the norm for many companies, low mortgage rates encouraged borrowers to buy homes, and a housing shortage constrained supply amid high demand.
The result is that the median home price now costs 36% more than it did five years ago. But in a few areas of the country, house prices are actually going down. Here’s where home prices are falling and what it means for you.
Where home prices are falling
Housing affordability fell to a 40-year low in 2023, but the situation is turning around in some parts of the country.
Here’s where home prices have been dropping over the past year, according to Realtor.com:
Miami, Florida: Down 11.2%Denver, Colorado: Down 6.3%Seattle, Washington: Down 5.5%Kansas City, Missouri: Down 4.9%Oklahoma City, Oklahoma: Down 4.3%San Jose, California: Down 4%Tampa, Florida: Down 3.2%Austin, Texas: Down3.1%Detroit, Michigan: Down 3%San Antonio, Texas: Down 2.6%Raleigh, North Carolina: Down 2.6%
The recent pullback in the above cities indicates that the housing market is finally moving in a more favorable direction for some buyers.
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How could falling home prices impact you?
Falling prices could make owning a home more affordable, but not just because the home itself costs less. Here’s how lower home prices combine with other factors to make home buying cheaper.
1. You’ll need a smaller down payment and could have more housing options
The first thing you might notice if home prices come down in your area is that you have more options. For example, if the top of your budget is $350,000 and a house you like is $365,000, a 4.1% drop in its price would mean the home is now in your price range.
Not only could this open up more buying options for you, but your down payment might also get cheaper. If you put 20% down for a house that costs $365,000, you’ll pay $73,000. But if that same home is now priced at $350,000, a 20% down payment is $70,000, saving you $3,000 at closing.
2. Lower rates and lower prices could save you hundreds each month
The Federal Reserve recently cut the federal funds rate by a half percentage point, which means mortgage interest rates should begin to slowly come down as well. While the Fed doesn’t set mortgage rates, changes with federal funds rate influences mortgage rates, as does inflation and the strength or weakness of the economy.
Many economists estimate that mortgage rates could continue coming down as the Fed makes additional rate cuts, perhaps dropping to 5.5% by the end of 2025.
Average mortgage rates have fallen from about 7.1% six months ago to the current rate of 6.1%. Falling home prices combined with lower rates means that your mortgage payment could be substantially lower than before. Take a look:
(Principal + Interest)$365,000$73,0007.1%30 years$1,696$350,000$70,0006.1%30 years$1,963
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As you can see, a home price that’s 4.1% lower than before, combined with rates down 1% over the past six months, means the same home could be $267 cheaper per month than before.
I’ve been on the sidelines of the housing market over the past few years, biding my time and waiting for a good deal. With some home sales slowly dropping, I’m optimistic that my wait might soon be over. If you’ve been on the sidelines, too, these falling prices and lower interest rates may be just enough to bring you back into the game.
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