As rates retreat and home price appreciation cools, homebuyers are getting more bang for their buck, analysts at Zillow report.
Rising mortgage rates in 2022 pushed many buyers’ dream homes out of reach. Those who opted to stay in the market found that the homes they could afford were smaller and more expensive.
More affordable metros were the most impacted, as buyers competed for homes in those markets. Hartford had the largest dip in home size for $3,000, down 1,200 square feet. Indianapolis and Cleveland also saw homebuyers lose over 1,000 feet.
More expensive markets like San Jose, Los Angeles, San Diego, and San Francisco saw a similar trend.
“Mortgage rates have a huge impact on the types of homes buyers are able to afford. Rates that doubled over the past year carved an extra bedroom or office space off of homes at the national level, though the sting has lessened in recent weeks,” said Anushna Prakash, economic data analyst at Zillow.
Analysts say the trend is reversing. The same buyer can now afford 84 square feet more than they could when rates were above 7%, and the typical value of a home they can afford is up by around $60,000.
Home size for $3,000 has risen most over the last few months in Salt Lake City, Minneapolis, Memphis, and Denver. The Midwest and Great Lakes regions now offer the most space per dollar for homebuyers prioritizing size over location.
Expensive markets are seeing serious price declines regardless of their floor plans now that buyers are seeking out more affordable areas. The median monthly housing payment for San Francisco homebuyers has dropped 14.8%, from $9,973 to $8,496 since October, the biggest percentage decline of the 49 most populous U.S. metros.
But while affordability may be improving, it’s a slow-moving process. The Mortgage Bankers Association reported this week that the average loan size on a purchase application increased to $428,500, the largest average since May 2022.
“This increase is a sign that the recent upward trend in purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry-level housing remains undersupplied, and buyers struggle with affordability in many markets,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
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