The Dual Impact of Lower Mortgage Rates on Affordability and Availability of Homes

In the current report, Realtor.com®, in collaboration with the National Association of REALTORS®, quantifies the effect of expected lower mortgage rates. To do that, after computing the maximum affordable price, they estimated the number of listings that are affordable for each income group when rates are 6.8% (currently) versus a 6.0% rate. This decrease in mortgage rates – 80 basis points – allows for a considerable increase in the purchasing power of home buyers for each income group since they can afford to purchase more expensive homes. For instance, buyers earning $100,000 can afford to purchase a home valued at up to $327,460 at a 6.8% rate. Nevertheless, if the rate were to decrease to 6.0%, the same buyer could afford a home priced up to $348,070 (6.3% more expensive).

Table: Monthly mortgage payment for median price home

Key Findings

Data shows that buyers at all income levels will be able to afford a greater number of listings, thereby expanding their choices.
The impact is more pronounced at certain income levels, particularly in the middle and upper-middle income brackets ($75,000-$150,000). For higher income levels ($150,000 and over), the percentage increase in affordability is smaller because they already have access to a majority of the housing market. In addition, higher income levels are usually less sensitive to rate changes.
For the lowest income groups ($15,000-$50,000), the increase in affordability is marginal. This suggests that even with lower rates, these buyers will have limited access to the market.
Across each income group, buyers with an annual income of $125,000 will see the greatest advantage from this decrease in mortgage rates. These buyers can afford to purchase homes valued up to $435,090 when rates are at 6.0%, as opposed to a maximum home value of $409,330 at a rate of 6.8%.
Buyers earning $125,000 will afford to buy 42,650 additional listings at a 6% rate.
Middle-income buyers – earning $75,000 – will be able to buy 33,050 additional listings at a 6% rate.
Even with lower mortgage rates, the market still lacks a significant number of affordable listings. In a balanced market, buyers earning $125,000 should be able to afford 72% of the listings. However, even with 6% rates, these buyers can afford only 55% of the listings.