Homes are becoming more affordable, but down payments are holding buyers back

Mortgage rates are lower, home prices are falling, and there is more supply on the market for sale. All of this adds up to improving affordability for today’s homebuyers. However, saving for a down payment is still the biggest hurdle for first-time buyers.

Prices nationally are essentially flat compared to a year ago, according to Parcl Labs, which conducts daily studies of U.S. home prices. It fell into negative territory earlier this month and is now only 0.3% higher year-over-year.

The latest Standard & Poor’s Quality Case-Shiller home price index, which reflects prices from October, showed wide variations between major city markets. Among the top 20 markets it highlights are Chicago; New York; Cleveland achieved the biggest gains. Meanwhile, eight cities showed prices in negative territory, including Tampa, Florida; Phoenix. Dallas is witnessing the largest losses.

“National home prices also continue to lag consumer inflation, with the October CPI estimated at around 3.1% (based on a temporary index announced by the US Treasury due to the closing of federal data) – roughly 1.8 percentage points higher than the recent rise in housing prices,” Nicholas Godek, head of tradable and fixed-income commodities at S&P Dow Jones Indices, explained in a statement. “In real terms, this gap indicates a slight decline in inflation-adjusted home values ​​over the past year.”

Mortgage rates are also falling.

The average 30-year fixed mortgage is currently 6.19%, according to Mortgage News Daily. I started this year at over 7%. This reduction means significant savings for homebuyers.

For example, for a buyer paying 20% ​​for a $410,000 home (close to the national average), the monthly payment today is $200 lower on average than it was a year ago. Weaker prices and lower rates are changing the math on what first-time buyers can afford.

The typical home buyer now needs seven years to save up for a down payment, according to Realtor.com. That’s down from 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 it was in 2020.

Down payments remain the biggest barrier to homeownership, which fell in the second half of this year to 65%, according to the US Census, the lowest level since 2019.

But the improved supply of homes for sale is adding momentum to the market. Active listings are now about 12% higher than they were a year ago, according to Realtor.com, but still 6% lower than they were before the pandemic.

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

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