Thanks to historically low mortgage rates, homebuyer purchasing power increased year-over-year in July.
A new report from proptech firm Redfin found that a homebuyer with a $2,500 monthly housing budget can now afford a home priced $33,250 more than a year ago,
At a 3% mortgage interest rate (the average 30-year fixed rate for July and August), a prospective homebuyer can afford a $516,500 home on a $2,500 budget per month. This is a 6.9% ($33,250) increase from the $483,250 they could afford on the same budget when the average interest rate was 3.77% in July 2019.
However, the continuing housing supply shortage also means there are fewer affordable homes for sale for someone with a $2,500 monthly budget than last year. According to Redfin, 70.6% of homes nationwide were affordable on that budget in July, down slightly from 71.9% in July 2019.
“Low mortgage rates are motivating many people to purchase a home, particularly those who want more space to work from home," said Daryl Fairweather, chief economist at Redfin. “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. Those competing forces make the current market a wash for many buyers looking for single-family homes in competitive areas.”
Salt Lake City (-5.2%), Kansas City (-3.7%), Austin (3.2%), and Boston (-3%) posted the biggest drops in the percentage of affordable homes for sale. Meanwhile, Miami (+2.1%), Jacksonville (+2), Columbus (+2), and Milwaukee (+2) have the largest gains.