Home prices get more affordable, but down payments hold buyers back

Mortgage rates are falling, home prices are falling, and there is more supply on the market. All of this contributes to greater affordability for today’s home buyers. But saving for a down payment is still the biggest hurdle for first-time buyers.

Prices across the country are essentially the same as a year ago, according to Parcl Labs, which conducts daily research on U.S. home prices. They dipped into negative territory earlier this month and are now just 0.3% higher on a yearly basis.

The latest S&P Cotality Case-Shiller home price index, reflecting October prices, showed large differences among metro markets. Among the top 20 markets it highlights are Chicago; New York; and Cleveland made the biggest gains. Meanwhile, prices are in negative territory in eight cities, including Tampa, Florida; Phoenix; and Dallas sees the biggest losses.

“National home prices also continue to lag consumer inflation, as October CPI (based on the interim index released by the U.S. Treasury due to a federal data outage) is estimated at around 3.1%, roughly 1.8 percentage points higher than the most recent home valuation. In real terms, this gap represents a slight decline in inflation-adjusted home values ​​over the past year,” said Nicholas Godec, head of fixed income commodities and commodities at S&P Dow Jones Indices. release.

Mortgage loan interest rates are also falling.

The average for a 30-year fixed mortgage is currently 6.19%, according to Mortgage News Daily. It started this year above 7 percent. This decrease means significant savings for home buyers.

For example, for a buyer who puts 20% down on a $410,000 home (right around the national average), today’s monthly payment is on average $200 less than it was a year ago. Weaker prices and lower rates are changing the math of what first-time buyers can afford.

The typical home buyer now needs seven years to save for a down payment, according to Realtor.com. That’s lower than the last 12-year peak in 2022, but still roughly double pre-pandemic levels, in part because the personal savings rate is much lower than in 2020.

Down payments continue to be the biggest obstacle to homeownership, falling to 65% in the second half of this year, the lowest level since 2019, according to the US census.

However, the increase in the supply of houses for sale accelerates the market. Active listings are now about 12% higher than a year ago, but still 6% lower than before the pandemic, according to Realtor.com.

And buyers seem to be responding. Pending home sales, which include signed contracts on existing homes, rose more than expected in November. Those rates were 3.3% higher than October and 2.6% higher than November 2024, the highest in nearly three years, according to the National Association of Realtors.

“Improving housing affordability, driven by lower mortgage rates and wage growth rising faster than home prices, is helping buyers test the market. More stock options compared to last year are also attracting more buyers to the market,” Lawrence Yun, chief economist of Realtors, said in a statement.