The typical San Jose, Calif., homebuyer’s monthly housing payment has fallen more than $2,000 from its springtime peak, landing at $9,398 in mid-September, according to a new report from Redfin.
San Jose saw the biggest drop in monthly housing payments among metros Redfin analyzed.
Housing payments are falling due mostly to lower mortgage rates. In anticipation of the Fed’s historic interest-rate cut, which happened last month, the average 30-year mortgage rate fell to 6.1 percent in mid-September from roughly 7.2 percent at the end of April. Home prices falling from their peak also play a part in declining housing payments. San Jose’s median sale price dropped about 7 percent over that period, with some of that decline due to typical seasonality, Redfin said.
“House hunters who have been waiting on the sidelines for costs to fall should seriously consider jumping into the market now,” Chen Zhao, Redfin’s economic research lead, said in a release. “We’re in a sweet spot for buyers. This may be close to the bottom for housing payments, especially in expensive and desirable coastal markets. Mortgage rates have fallen about as much as they’re going to fall, and we’re already seeing demand surge back. If supply doesn’t increase as much as demand, price growth is likely to rise.”
Two other California Bay Area metro areas saw the next-biggest drops in median housing payments. In San Francisco, the median payment dropped $1,372 from its April peak to $9,330, and in Oakland it dropped $1,338 to $5,676.
Southern California metros round out the top five places where payments have dropped most, with an $840 decline in Anaheim and a $670 decline in Los Angeles.
This is according to a Redfin analysis of median monthly housing payments, which are calculated using average 30-year fixed mortgage rates and median sale prices, and assume a 20 percent down payment. The analysis calculated median housing payments in major metro areas for the four weeks ending Sept. 15 and compared them to the four weeks ending April 28, when the median monthly housing payment hit an all-time high.
The Bay Area also led the pack in percentage declines. In Oakland, housing payments fell 19.1 percent from the springtime peak, and in San Jose they fell 18.2 percent. Three southern metro areas round out the five places where payments posted the biggest percent declines: Austin, Texas (-14 percent to $2,757), Jacksonville, Fla. (-14 percent to $2,263) and Nashville, Tenn. (-13.1 percent to $2,829).
Housing costs fell in 44 of the 47 metros included in Redfin’s analysis. They rose slightly in Newark, N.J. ($39), Nassau County, N.Y. ($26) and Cleveland ($25) due to increases in local home prices outweighing mortgage-rate declines.
This is good news for homebuyers, who have been waiting years for a meaningful drop in housing payments. The cost of buying a home began rising in early 2022 as the Fed increased interest rates to battle inflation, which pushed up mortgage rates. That dampened demand, but it dampened supply even more, driving up home prices despite slow sales. Median monthly mortgage payments peaked in April, when home prices were approaching their all-time high and mortgage rates were sitting above 7 percent, Redfin added.
Now, housing payments have fallen substantially from their peak because mortgage rates are declining. Home prices have also fallen from their peak — more significantly in some metros than others — but they have generally stayed high due to low inventory.
Mortgage rates are unlikely to drop much further than they already have, as markets had already priced in the Fed’s rate cut and upcoming Fed rate cuts may push mortgage rates down to around 5.7 percent — but not much lower. Plus, home prices may increase as lower rates bring back demand, according to Redfin.