Affordable homes are getting a less affordable.
A report released Friday by Redfin found that the most affordable third of homes in the United States were 5.5 percent more expensive at the end of May than they were a year ago – while the price of the most expensive third of homes increased just 2 percent.
“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.”
Redfin reports that price growth began accelerating for affordable homes and decelerating for expensive homes shortly after the World Health Organization declared COVID-19 a pandemic on March 11. This reverses a trend prior to the pandemic, when the price-growth gap had narrowed to as little as 1.26 percentage points during the 12-week period ending March 22.
Here is a look at what has happened to prices in select communities:
- Newark, New Jersey: The most affordable third of homes saw prices surge 14.7 percent year over year to a median of $211,281 during the 12 weeks ending May 31—the largest increase out of the 50 most populous U.S. metropolitan areas.
- Philadelphia and Detroit: The price of the most affordable third of homes increased 13.6 percent and 13.3 percent respectively.
- The only areas that saw prices decline in the most affordable sector were San Jose (down 2.4 percent) and San Francisco (down 2.1 percent), though their affordable houses are listed at $777,500 and $952,125, respectively.
“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,” said Pam Henderson, a Redfin agent in Dallas. “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.”
View the full report here.