As the housing market cools from the last two years of blistering activity, demand is falling off thanks to a significant drop in affordability.
“Double-digit house-price appreciation chipped away at affordability as the pandemic-driven supply and demand imbalance fueled competition for a limited inventory of homes for sale,” First American Economist Ksenia Potapov said in a release.
That, coupled with increases in the average 30-year, fixed mortgage rate, means the median potential first-time homebuyer could afford only 35 percent of the homes for sale nationally in April 2022, down from 54 percent a year earlier.
“Yet, millennials continue to age into their prime homebuying years, creating a wave of demographic demand for homeownership,” Potapov said. “Many potential first-time homebuyers have pulled back from the market amid the deterioration in affordability, but they can still find pockets of affordable homes.”
Affordability rates dropped year-over-year in all the top 50 markets, according to First American. Cities where first-time homebuyer affordability declined the most were the ones where house prices increased fastest. Those markets included Phoenix, where only 16 percent of homes were affordable to the median renter, Raleigh, N.C. (27 percent), and Providence, R.I. (20 percent).
Even so, potential first-time buyers can find cities where there are still plenty of affordable homes for sale.
“For a housing market to be considered affordable, the median renter should be able to afford 50 percent or more of the homes for sale,” Potapov said. “Several cities met that threshold in April 2022, and some by wide margins.”
The five cities where the median renter could find the largest supply of affordable homes to buy were Buffalo, N.Y. (78 percent), Pittsburgh (70 percent), Oklahoma City (62 percent), Detroit (61 percent) and Cincinnati (60 percent).
“Since April, mortgage rates have trended even higher, further reducing house-buying power and dampening demand,” Potapov said. “As the housing market cools, house price growth is likely to moderate as potential buyers pull back from the market, allowing supply and demand to rebalance. But, in the interim, cities such as Buffalo, N.Y., Pittsburgh, Oklahoma City and Detroit provide renters the greatest opportunity to purchase a home.”