Home Buyers Have More Purchasing Power, But Face Inventory, Coronavirus Headwinds
A dramatic drop in mortgage interest rates, driven by coronavirus fears, has given homebuyers a big boost in purchasing power in recent weeks, according to an analysis from Redfin, Seattle.
Redfin said at a mortgage interest rate of 3.2%, a homebuyer with a $2,500 monthly mortgage budget could afford a home that is $51,250 more than in March of 2019, when rates were 4.4%. Put another way, a buyer who could accord a $457,000 home in March of last year 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.”
However, home buyers are facing major inventory crunches and intense bidding wars in many markets. In January, the housing supply fell 11% year over year, to fewer homes for sale than any time since January 2013.
Despite fewer homes for sale in most markets, the share of homes for sale that were affordable on a $2,500 monthly payment nationally increased 1.9 percentage points from 68.6% between March 4 and March 10, 2019 to 70.5% between March 2 and 8, 2020.
Markets where homebuyers saw the biggest boost in the share of affordable inventory compared to a year ago were Dallas (+6.2 points), Portland, Ore. (+5.2 points) and Richmond, Va. (+4.3 points). Despite the drop in mortgage rates expanding the range of homes that buyers can afford, the share of affordable inventory on a $2,500 payment fell 3.6 points in Phoenix, 3.4 points in Las Vegas and 1 point in Orlando from a year ago. The report is available at https://www.redfin.com/blog/mortgage-rates-drop-on-coronavirus-fears.