The demand for homes continues to rise and with low inventory, home prices are responding to the pressure.
Between the date in March that the World Health Organization declared a pandemic and the week ending May 31, Redfin found that prices of houses ranked in the 6th to 35th percentile for value rose 5.5% year over year, while prices of homes in one of the top tiers — those from 66th-95th percentile — rose just 2%. The study did not look at homes with values in the very top or very bottom 5%.
This mirrors the 5.5% year-over-year home price gains reported by the Federal Housing Finance Agency for April.
“The severe shortage of affordable homes that we’ve been grappling with for years is now being exacerbated by an increase in the number of buyers who are in search of lower-cost houses,” Redfin Lead Economist Taylor Marr said in the report. “Many Americans – especially Millennials – were already toying with the idea of buying their first house before the pandemic. Now they’re actually taking the plunge because mortgage rates are so low and it’s less attractive to live in a small apartment right next to the office.”
The biggest change in the median home sale price of the affordable third of homes was in Newark, New Jersey, at 14.7%, where the median sales price was $211,281 in the 12 weeks ending May 31.
Meanwhile, the biggest change in the top-third price tier was in San Jose, California, at 16.9%, making the median home sale price $1,150,167 during the same time period.
By May 31, the gap between top and bottom price tiers growth rates was at 3.5%, Redfin said. Prior to the pandemic, the price-growth gap was just 1.26% during the 12-week period ending on March 22.
“Prices will likely continue to grow faster in the more affordable segment of the market for at least the next few years given this lack of supply,” Marr continued. “Fortunately, mortgage payments are actually lower now than they were a year ago, despite the growth in home prices, because mortgage rates have dropped so much; the median monthly payment on a home listed in May fell to $1,170 from $1,225 during the same period the prior year, despite an $18,000 rise in asking prices.”
Nationally, there was a weekly average of about 322,000 homes for sale in the bottom price tier during the 12 weeks ending May 31, which is down from 332,000 in February. However, in the top tier, there was a weekly average of 586,000 homes on the market, which is up from 556,000 three months earlier.