Elevated borrowing costs for home loans is pushing up the monthly outlay buyers have to pay to afford a new home, according to real estate platform Realtor.com, adding another obstacle for first-time homebuyers in their pursuit of property.
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Home prices went up by $12,500 from April to May, bringing the median listed home to $442,500. A year ago, a home was listed at $441,000. At the same time that prices are rising, mortgage rates have gone up to above 7 percent, contributing to a jump in monthly mortgage payments.
Last month, the cost of financing 80 percent of a home shot up more than 7 percent relative to the same time a year ago, Realtor.com said. In May, households needed to earn about $120,000 a year—$6,400 more—to afford to buy a home.
Mortgage rates will be a key variable that will determine how affordable buying a home would be going forward, Realtor.com's chief economist Danielle Hale told Newsweek.
"What happens with mortgage rates, which is what everyone is really focused on, I think that's the variable that can change [affordability]," she said.
One dynamic that could offer some hope for buyers is the housing market is seeing an increase in supply, which could provide more options.
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Homes for sale jumped by more than 35 percent. Markets seeing increases in listings included the Florida cities of Tampa and Orlando, along with Phoenix, Arizona.
Realtor.com also noted that the number of homes listed at lower price points is rising. Properties listed between the $200,000 to $350,000 shot up to nearly 47 percent from a year ago, accelerating further than April's high of 41 percent.
"It's a bit of a good news, bad news story," Hale said. "There's just not a lot of smaller homes that tend to be in lower price points that were for sale and so that really made it challenging for entry level buyers."
But this may be shifting, with evidence that there may be more smaller, less expensive, properties entering the market even though the median price-per-square foot for a typical home is worth nearly 53 percent more than before the COVID-19 pandemic.
"We have seen the number of homes, that are priced in those lower price categories, are a growing share of what's on the market," Hale told Newsweek. "So that means, even though prices are still going up on a per square foot basis, there are more options in that affordable price tier which tend to be smaller homes and so that is good for entry-level buyers."
But the sector over the last five years has evolved into more of a sellers' market. Compared to May 2019, median list prices are up 37.5 percent while the supply of homes was down more than 34 percent, a dynamic that is escalating competition from buyers, leading to a rise in prices.
"Anyone who's owned their home for more than a couple of years is likely sitting on a substantial amount of equity because of the significant gains that we've seen in home prices over this period of time," Hale said.
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Another key to affordability, along with a drop in mortgage rates, will be whether asking prices go down, Hale said, at the potential loss for sellers, albeit at limited levels and income growth.
"The market could probably absorb some decline in home prices without major knock on effects," she told Newsweek. "If incomes grow, then that improves people's ability to afford to buy a home."
But for the moment, the housing market remains a sellers market.
"Though with mortgage rates still much higher than many existing homeowners enjoy, this opportunity favors sellers who don't have to replace a mortgage," Hale said in an earlier the statement shared with Newsweek. "Such as investors or second homeowners looking for an exit, or equity-rich homeowners looking to downsize in their current area or to a lower-cost region, as well as those planning to rent their next home."
Update 06/04/24 3:20 p.m. ET: This article has been updated with comment from Danielle Hale.
