The impact of the coronavirus on mortgage rates has given homebuyers a boost in purchasing power, according to an analysis from Redfin.
Last week, the 30-year mortgage interest rate plunged to its lowest level in more than 50 years. At a rate of 3.2%, a homebuyer with a $2,500 monthly mortgage budget could afford a home $51,250 more expensive than in March 2019, when rates averaged 4.4%. In other words, a buyer who could afford a $457,000 home in March 2019 could afford a $508,000 home today.
"Potential homebuyers now have an extra incentive to buy a home despite all of the economic uncertainty from the coronavirus," said Redfin Chief Economist Daryl Fairweather. "And many current homeowners now have the option to refinance their mortgages and gain some extra spending cash each month. Low-interest rates won't help with direct impacts of the coronavirus on the economy like declines in tourism and service sector spending, but they will mitigate impacts to housing."
Despite a tight national inventory, the share of homes for sale that were affordable on a $2,500 monthly payment grew 1.9% from 68.6% between March 4 and March 10, 2019, to 70.5% between March 2 and March 8, 2020.
Homebuyers in Dallas, Portland, Ore., and Richmond, Va., saw the largest year-over-year increase in the share of affordable inventory, up 6.2 points, 5.2 points, and 4.3 points, respectively.
Meanwhile, the percentage of affordable inventory on a $2,500 payment dropped 3.6 points in Phoenix, 3.4 points in Las Vegas, and 1 point in Orlando year over year.
"I just had a buyer who was at the top of his budget lock in a 2.99% mortgage rate, and he is ecstatic at how much more flexibility his finances will have thanks to the interest rate drop," said Portland Redfin agent Meme Loggins. "Another one of my buyers was looking at condos just a few weeks ago because he didn't think he could afford a single-family home, but thanks to the low rates he can now. Homebuyers in every price range are excited, even those looking at homes priced well over $1 million. Unfortunately, we are still facing competition on every offer, which leads us to drop contingencies and offer above list price. With the inventory crunch, these low rates are definitely adding to the frenzy."