Despite the subpar fall housing market, an economist asserts that it's the best we can expect.

• Lower mortgage rates make monthly mortgage payments more affordable and cheaper than rent in some places, according to a Zillow analysis.
• Despite the high cost of housing, "this is the best it can get," according to Orphe Divounguy, senior economist at Zillow.
• Here's what other experts say.

Despite ongoing challenges with housing affordability in the U.S., the situation is gradually improving thanks to lower mortgage rates.

A recent report by Redfin, an online real estate brokerage firm, indicates that to afford the typical home in the U.S., buyers need to earn $115,000, which is 1% less than a year ago and marks the first decline since 2020.

During the four weeks ending Sept. 15, the median mortgage payment was $2,534, a 2.7% decline from the previous year, according to Redfin.

Redfin's chief economist, Daryl Fairweather, stated that the decline in mortgage rates is the reason for both declines.

The average 30-year fixed rate mortgage decreased from 6.20% to 6.09% as of Sept. 19, according to Freddie Mac data via the Fed. This year, the rate peaked at 7.22% on May 2.

Fairweather stated that the decrease in mortgage payments is solely due to the impact of interest rates.

The Federal Reserve's decision to cut interest rates may prompt you to consider refinancing your mortgage. Meanwhile, Vanguard has discovered a "billion-dollar blind spot" in 401(k)-to-IRA rollovers. Lastly, the first interest rate cut in years could have a significant impact on your wallet.

Despite earning 27% less than what they need to afford a home, which is approximately $84,000 per year, according to Redfin data, home prices remain high, with the median asking price for newly listed homes for sale being $398,475, an increase of 5.4% from the previous year.

Although housing remains unaffordable for most buyers, the market is improving with lower mortgage rates, more inventory, and less buyer competition, according to senior economist Orphe Divounguy of Zillow.

Here's what buyers can expect in the coming months.

'Mortgage rates will go by the way of the economy'

"A great opportunity for buyers who have been waiting is provided by lower home loan rates," said Divounguy.

Although the Federal Reserve reduced interest rates, it does not guarantee that mortgage rates will decrease, according to him.

Mortgage rates are affected by both the Fed's policy and Treasury yields, as well as other economic data.

According to Melissa Cohn, regional vice president of William Raveis Mortgage in New York, mortgage rates will follow the path of the economy.

"If the economy weakens, interest rates will decrease, according to Cohn. On the other hand, if the economy is performing well and employment improves, there is a possibility that interest rates will increase."

More homes are coming on the market

A higher inventory of homes for sale and lower mortgage rates make the housing market more favorable for buyers, according to Divounguy.

The number of homes for sale increased by 0.7% from July to August, reaching a total of 1,350,000 homes, according to the National Association of Realtors. This inventory level was 22.7% higher than the same time last year in August 2023.

In September, the National Association of Home Builders reported an improvement in homebuilder confidence for newly built single family homes. Additionally, the share of builders cutting prices decreased by one point to 32%, marking the first decline since April.

According to Divounguy, the increase in foot traffic among some builders indicates that the market may become competitive again.

The level of existing home inventory will determine price growth, according to Robert Dietz, chief economist at the National Association of Home Builders.

As the mortgage rate lock-in effect weakens, the existing home inventory is predicted to increase, potentially leading to a decrease in prices, according to Dietz.

Wait and 'you're trading one difficulty for another'

According to Fairweather, the housing market will not deteriorate significantly in the next 12 months. If house hunters are disheartened because they haven't found a home, they may have a better chance next year when there will be more listings, Fairweather suggests.

But they risk higher competition, she warns.

"You're trading one difficulty for another difficulty," Fairweather said.

If mortgage rates decrease next year, the number of homes for sale may increase. Many homeowners are currently locked into low mortgage rates, making it difficult for them to sell and finance a new home at a higher rate.

High borrowing costs are preventing people from buying or selling, according to Fairweather.