Prices of the most affordable third of homes in the U.S. climbed 5.5 percent year-over-year during the 12 weeks ending May 31, according to a report from Redfin.
Prices of the most expensive third of homes increased 2 percent during that same period, Redfin found.
“Spending so much time at home during quarantine has made a lot of people realize that it might be time to stop renting a cramped apartment in the city and time to start owning their first single-family home,” Redfin agent Pam Henderson said in a release. “With mortgage rates at record lows and remote work on the rise, some renters are having an epiphany: They could buy a lower-priced home in the suburbs for close to what they’re paying in rent.”
According to the report, the most affordable third of homes in Newark, N.J., saw prices increase 14.7 percent year-over-year to a median of $211,281 during the 12 weeks ending May 31. Philadelphia and Detroit saw price increases of 13.6 percent and 13.3 percent.
Redfin said the only metro areas that had prices in the most affordable range decline were San Jose, Calif. (-2.4 percent to $777,500) and San Francisco (-2.1 percent to $952,125).
Redfin said the increase in prices of affordable homes is tied to a shortage in the supply of affordable homes on the market.
“The severe shortage of affordable homes that we’ve been grappling with for years is now being exacerbated by an increase in the number of buyers who are in search of lower-cost houses,” Redfin lead economist Taylor Marr said.
“Many Americans — especially millennials — were already toying with the idea of buying their first house before the pandemic. Now they’re actually taking the plunge because mortgage rates are so low and it’s less attractive to live in a small apartment right next to the office,” Marr said. “Prices will likely continue to grow faster in the more affordable segment of the market for at least the next few years given this lack of supply. Fortunately, mortgage payments are actually lower now than they were a year ago, despite the growth in home prices, because mortgage rates have dropped so much.”