Higher home prices cancel out increased affordability: Redfin
Low mortgage rates boosted consumer home purchasing power in July by nearly 7% compared with one year ago. However, rising prices caused by the inventory shortage has negated that, according to Redfin.
Thanks to a 30-year fixed rate mortgage that stayed in the 3% range during July (which remains that loweven now), a potential buyer with a housing budget of $2,500 per month could afford to buy a home priced at $516,500. That's up from the $483,250 they could afford on the same budget in July 2019.
But home prices rose by 8.2% on a year-over-year basis in July, Redfin found. As a result, 70.6% of homes nationwide were affordable on a $2,500 per month housing budget, down slightly from 71.9% one year prior.
"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 press release. "But because therehasn't been an increasein 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," Fairweather said.
And perhaps some of those would-be buyers are losing heart. The week-to-week data released by HouseCanary indicates that the purchase market is slowing. New listings dropped 6.5% for the week of Sept. 3 compared with one week prior. While this was down 26% from the week of March 13, which is considered the start of the pandemic shutdown, they are up 16.2% from the low point for the week of April 17.
At the same time, the volume of listings going into contract is down 5.8% on a week-to-week basis.
"The sustained supply deficit, lifting of COVID-19 precautions in several states and the devastating effects of natural disasters across the country have created impending risks that are difficult for potential homebuyers to ignore," said HouseCanary CEO Jeremy Sicklick in the report. The slight pullback of home sales activity over the past few weeks may reflect early signs of a seasonal shift in demand as the initial surge of pandemic buying weakens.
"While we do not see a significant leveling out or dramatic shift in the supply-demand imbalance in the third quarter of 2020, the potentialexpiration of forbearance programsin early 2021 has the potential to catalyze a surge in distressed home sales, which would likely take some of the heat off home prices," Sicklick said.