Study: Rising Prices and Mortgage Rates Have Eroded Affordability

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As a result of rising home prices and mortgage rates, home buyers in the 100 largest U.S. cities can no longer afford the amount of space they could a year ago, with the average buyer losing the equivalent of one to nine bedrooms, according to an analysis by Point2Homes. For example, residents in New York City earning the median income were able to afford a $320,000 home under the conditions of a 20% down payment and a 30-year, fixed-rate mortgage that wouldn’t require more than 30% of monthly income. In November 2022, the average New York City resident could now only afford a $245,997 home, according to Point2Homes.

Potential buyers in approximately 60 cities analyzed by Point2Homes “lost” between 500 and 1,000 square feet in living space due to changes in affordability related to rising home prices and mortgage rates. In 2021, a home seeker in Fort Wayne, Indiana, earning the median income could afford to buy a 3,035-square-foot home; in 2022, that same prospective buyer would only be able to afford 1,896 square feet of living space.

Beyond Fort Wayne, buyers in Wichita, Kansas; Chesapeake, Virginia; Indianapolis; Kansas City, Missouri; Virginia Beach, Virginia; Oklahoma City; Plano, Texas; Gilbert, Arizona; and Lexington-Fayette, Kentucky, experienced the largest decreases in affordable square footage from 2021 to 2022.

However, because home prices, the price per square foot, and median incomes vary from city to city, buyers who lost the most space were not the ones who lost the most in terms of buying power, according to Point2Homes. Prospective buyers with the median income in Fremont, California, could afford homes worth up to $893,390 in 2021 and can only afford a home costing $650,269 in 2022.

Prospective buyers in San Jose, California; San Francisco; Arlington, Virginia; Gilbert; Irvine, California; Seattle; Scottsdale, Arizona; Chandler, Arizona; and Washington, D.C., also lost between $150,000 and $200,000 in buying power from 2021 to 2022. According to Point2Homes, prospective buyers in an additional 33 cities lost between $100,000 and $150,000 in buying power compared with 2021.

Buyers in eight cities (Cleveland; Buffalo, New York; Detroit; Newark, New Jersey; Milwaukee; Toledo, Ohio; Cincinnati; and El Paso, Texas) lost less than $50,000 in purchasing power between 2021 and 2022.

As a result of the rapid pace of home price appreciation, the share of affordable inventory in 44 cities represented less than 10% of total homes for sale, according to Point2Homes. Only three cities have the share of homes available that are affordable for the average buyer above 50%: St. Louis (51%), Detroit (70%), and Toledo (76%).

To conduct the study, Point2Homes analyzed the household median income, home prices, and purchasing power in the 100 largest U.S. cities. Based on price per square foot data from Redfin for 2021 and October 2022, Point2Homes translated the affordable amounts into affordable square footage and number of bedrooms.

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