March 2020 Buyers Can Get More than March 2019 Buyers
SEATTLE – A dramatic drop in mortgage interest rates driven largely by coronavirus fears has given homebuyers a big boost in purchasing power in recent weeks, according to an analysis by Redfin.
At a mortgage interest rate of 3.2%, a homebuyer with a $2,500 monthly mortgage budget today can afford a home that sells for $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 can 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,” says 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, he adds, but they’ll mitigate impacts to housing.
The boost in purchasing power won’t help buyers find a home as the for-sale inventory continues to contract, but interest savings should offset price increases seen in most metro areas if they successfully submit an accepted contract. In January, the housing supply fell 11% year-to-year, and there were fewer homes for sale than at 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.
The markets where homebuyers are experiencing the biggest boost in the share of affordable inventory compared to a year ago were Dallas (+6.2 points), Portland, OR (+5.2 points), and Richmond, VA (+4.3 points).
“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.”
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 year-to-year.
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