In August 2020, Black Knight reported that U.S. homes are more affordable nationwide than in 3.5 years. Furthermore, they found that homes in some markets are seeing their lowest payment-to-income ratios in more than 25 years.
The report suggests that although home prices are steadily increasing, low mortgage interest rates are causing affordability to increase over time. Buyers, therefore, are experiencing more buying power and lower payment-to-income ratios than in previous years.
Low Mortgage Rates
Mortgage interest rates began to rise in 2019 as the Fed announced a plan for steady rate increases. However, once the Coronavirus pandemic hit the U.S., the economy came to an abrupt halt. This caused the Fed to reverse course, choosing instead to lower interest rates to stimulate the economy.
Shortly thereafter, mortgage interest rates hit historic lows, as the Fed also indicated its intention to keep rates low until the economy shows signs of recovery.
Home Pricing Trends
Throughout 2020 and for years beforehand, home prices steadily increased. This is thought to be a result of low interest rates and a reduction in available inventory.
Low interest rates result in lower monthly mortgage payments, which allow more people to buy a home while also allowing people to buy more expensive homes. All of this results in higher demand for homes, reduced home inventory, and therefore higher home prices.
Today, these factors are resulting in higher home prices. And because of events related to COVID-19, these conditions are more pronounced.
Today’s historic low interest rates are bright spots because homebuyers can often buy the same home today for a lower monthly payment than they could in 2019. This is especially helpful for first-time buyers and homeowners looking for a new home to better meets their needs.
Increased Buying Power
Although the prices of homes are increasing, the overall affordability of homes in the U.S. is at its highest point in 3.5 years. This is a result of low mortgage interest rates, even though home prices are higher.
Buying power has increased for homebuyers. According to Black Knight, buyers can afford around $32,000 more home today compared to 2019, without any change in their monthly payment. This gives buyers more options and a larger price range to search for a home.
Affordability in Specific U.S. Markets
Homes in the 25 largest U.S. metro areas are experiencing an increase in home affordability, with some areas seeing huge leaps in this metric. Baltimore is seeing the most benefit so far, with home affordability the highest since before 2005.
In Miami, homes are currently more affordable than they have been since October of 2016. Similarly, in Tampa, homes are more affordable than they have been since January of 2018.
Impact of the Coronavirus Pandemic
It’s unclear how the Coronavirus pandemic will impact the real estate market in the long-term. As of mid-2020, high home affordability is acting as a backstop to help keep the real estate market active during tough economic times. If the current trends persist, buyers will continue to enjoy stronger buying power and high affordability across the country.
Marimark Realty
Marimark Realty, home to the top Realtors for Tampa Renters, focuses on providing a personalized experience for buyers and sellers of real estate. As a full-service real estate agency, we help clients with luxury homes, homes for first-time homebuyers, commercial property, and investment property.
To begin the journey of purchasing or selling your home, or purchasing commercial or investment properties, contact us at your earliest convenience.