Homebuyer purchasing power increased 6.9% this July, meaning a homebuyer with a $2,500 monthly housing budget can afford a home priced $33,250 higher than a year ago, Redfin found, which it credited to historically low mortgage rates.
But with home prices up 8.2% year over year in July, this homebuyer purchasing power is essentially canceled out, data from Redfin shows.
“Low mortgage rates are motivating many people to purchase a home, particularly those who want more space to work from home,” Redfin Chief Economist Daryl Fairweather said in a release. “But because there hasn’t been an increase in the number of homes for sale since rates started dropping with the onset of the pandemic, many buyers end up competing for the same homes, driving up prices.”
For example: at a 3% mortgage rate, a homebuyer can afford a $516,500 home with a budget of $2,500 a month, up from a $483,250 home last year on the same budget. Essentially, the monthly payment on a $483,250 home has dropped from $2,500 a year ago to $2,339 today, Redfin said.
But because of low housing inventory, there are fewer homes for sale that are affordable for someone with a $2,500 monthly budget compared to last year. This July, only 70.6% of homes nationwide were affordable for a buyer with that budget, down from 71.9% last July.
“Those competing forces make the current market a wash for many buyers looking for single-family homes in competitive areas,” Fairweather said. “Buyers searching for condos can find a better deal, both on overall price and mortgage payments, because most condos are less competitive than single-family homes as people move out of densely populated urban areas.”
In Salt Lake City, the share of affordable homes went down 5.2 percentage points; followed by Kansas City, Missouri, down 3.7 percentage points; Austin, Texas, down 3.2 percentage points; and Boston, down 3 percentage points.
However, in Miami, the share of affordable homes for sale went up 2.1 percentage points while in Jacksonville, Florida; Columbus, Ohio; and Milwaukee, the share of affordable homes went up 2 percentage points.
This week, mortgage rates ticked up 2 basis points to 2.93%.