You might be shocked by how much cheaper it is to buy a house compared to last year

Many potential homebuyers have been left on the sidelines over the past two years as soaring home prices and rapidly rising mortgage rates have combined to make home ownership much less affordable for the average American.

However, despite persistently high house prices, home ownership has become significantly more affordable in the last year due to the falling interest rate environment. And you might be shocked at how much of a difference a change in mortgage rates can make.

House prices haven’t cooled down

You might be surprised that I’m calling home more affordable, especially as house prices have risen over the past year. According to Zillow, the median home value in the U.S. is currently $361,282, which is a 2.9% gain over last year.

Doing some math, that means the average home in the United States was worth $351,100 a year ago. So why is it more affordable to buy now?

Mortgage Rates Make a Big Difference

The short answer to why homes are more affordable now is that the average mortgage rate has cooled considerably from the generational highs we saw in 2023. In October 2023, the 30-year average mortgage rate peaked at 7 90%, according to the Mortgage Bankers Association.

On October 2 of this year, the average 30-year mortgage rate fell to 6.14%. This is about double the average mortgage rate at the start of 2022, so home affordability is nowhere near where it was a few years ago. But this change can still make a big difference to your costs.

Consider this example. As mentioned, the average home in the US was worth $351,100 a year ago. At a 30-year mortgage rate of 7.9% and assuming a 20% down payment, your monthly principal and interest payment would be $2,041, according to The Ascent’s mortgage calculator.

Now, even though the average home is worth about $10,000 more, the lowest average mortgage rate of 6.14% would generate a monthly principal and interest payment of $1,760 — or $281 less than you would pay for the same home for a year.

To be clear, these payments do not include property taxes or insurance, which are typically paid along with the mortgage. But a monthly payment of nearly $300 less can make a significant difference in home affordability for many people. After all, a savings of US$281 per month represents a savings of US$3,372 in interest per year, or over $101,000 over the life of a 30-year mortgage loan.

Of course, 6.14% is just the average mortgage rate. Check out our top mortgage lenders to get personalized rate quotes right now.

Will mortgage rates continue to fall in 2025?

To be perfectly clear, no one can accurately predict what mortgage rates will be at any given time in the future, and I am certainly no exception. And although the Federal Reserve recently lowered its benchmark interest rate and is expected to do so several times over the next few months, that doesn’t automatically mean that mortgage rates will fall further. In fact, a big reason why rates have already fallen so much is because of current interest rate expectations.

That said, most experts believe that (assuming the Fed’s rate cuts proceed as expected) mortgage rates will continue to gravitate lower. For example, Fannie Mae predicts that the average 30-year mortgage rate will fall to 5.7% by the end of 2025.

While rates may indeed fall further, the point is that it has become very more affordable to buy the average home in the United States compared to a year ago. And if rates continue to fall, everything will get even better. But that doesn’t mean you have to wait. If you can afford a monthly house payment now, you can go ahead, pull the trigger, and simply refinance your mortgage if rates drop further.