Haven't we all dreamt of a time when buying a home felt more achievable? Not too long ago, mortgage rates were comfortably below the desirable 6% mark. While a return to those exact rates might still be a ways off, a new report from Realtor.com® and the National Association of Realtors® brings encouraging news for aspiring homeowners, especially those considering specific housing markets across the country.
The good news? Lower mortgage rates are universally beneficial. They translate to reduced monthly payments, essentially stretching your budget and allowing you to reach for a pricier home you might have previously considered out of reach. In fact, the study suggests that a 1% drop in rates has the same affordability impact as a 10% decrease in median home prices – a significant boost for buyers!
But here's where things get even more exciting: some cities stand to gain a much larger jump in affordability compared to others.
Why Certain Markets Shine When Rates Dip
Realtor.com® Chief Economist Danielle Hale sheds light on the key factors at play:
- Inventory on the cusp: The number of listings teetering on the edge of affordability significantly impacts how much a rate drop benefits buyers. More such listings in a market translates to a bigger affordability jump. Imagine a market where several homes are priced just slightly above what most buyers can comfortably afford. A dip in mortgage rates could suddenly push those homes within reach, opening up a wider range of options.
- Income distribution vs. home prices: The interplay between local incomes and home prices determines how many homes are within reach for the median earner. Cities with a healthy balance between income levels and housing costs are poised to see a larger affordability boost. In a market where home prices have skyrocketed but wages haven't kept pace, even a significant drop in rates might have a limited impact.
Top Housing Market Poised for Affordability Gains
Dreaming of homeownership? Here's where falling mortgage rates could unlock MAJOR affordability gains in 5 metros. Taking these factors into account, the report identified five metropolitan areas that would see a substantial affordability boost if mortgage rates dropped to 6%.
- Spokane, WA: The champion of affordability gains! Spokane takes the crown with a projected 11.4% increase. This means a family earning $100,000 could suddenly find themselves with access to 24.9% of the available listings, a significant leap from the 19.4% they could afford at the March 2024 average rate. Imagine the possibilities – a larger home, a coveted neighborhood, or perhaps a backyard for the family – all becoming more attainable with a lower mortgage rate. Spokane offers a unique blend of affordability, outdoor recreation opportunities, and a charming downtown scene, making it an attractive option for many homebuyers.
- Lakeland-Winter Haven, FL: Sunshine and affordability go hand-in-hand in Lakeland-Winter Haven, with a projected 11.0% increase in affordability. This vibrant community in Florida could see a significant rise in the number of homes accessible to middle-income earners, making homeownership dreams a reality for many. Beyond its affordability, Lakeland-Winter Haven boasts beautiful lakes, a thriving cultural scene, and easy access to theme parks and beaches.
- Salt Lake City, UT: This bustling city could see a 10.8% jump in affordability, making homeownership dreams more attainable for many residents. Whether you're drawn to the proximity to world-class skiing and outdoor recreation or the city's thriving job market, a dip in mortgage rates could open the door to securing your slice of the Salt Lake City dream. With its mix of urban amenities and stunning natural surroundings, Salt Lake City offers a lifestyle that appeals to a wide range of residents.
- Deltona-Daytona Beach, FL: Craving a beach escape? Deltona-Daytona Beach could see a 10.4% increase in affordability, putting the coastal lifestyle within reach for more residents. Imagine soaking up the sunshine on your balcony or enjoying weekend strolls on the beach – a lower mortgage rate could make this dream a reality. Deltona-Daytona Beach offers a relaxed, beach-oriented atmosphere with a lower cost of living compared to other coastal Florida destinations.
- Fresno, CA: Finally, Fresno, California, rounds out the list with a projected 10.2% increase in affordability – good news for those seeking a more budget-friendly California dream. Fresno offers a vibrant cultural scene, a strong agricultural industry, and a lower cost of living compared to other parts of the state. With a dip in mortgage rates, securing a home in Fresno could become a more realistic option for many Californians.
A Note on Affordability Scores
The report utilizes a local affordability score (ranging from 0 to 2) to gauge affordability. Local affordability scores, as defined by Realtor.com and NAR, take into account the median income in a particular area and weigh it against the prevailing home prices. Scores range from 0 to 2, with a score of 1 or above indicating that a median-income earner in that location can afford at least half of the homes on the market.
Here's an example to illustrate how these scores work:
Imagine City X has a local affordability score of 1.2. This signifies that a middle-income buyer in City X can comfortably afford 60% (1.2 x 50%) of the available homes. Now, if mortgage rates drop in City X, the affordability score might rise to 1.3, indicating that the same median-income earner can now afford 65% of the homes for sale. This translates to a wider range of attainable options for potential buyers.
The report emphasizes that while a decrease in mortgage rates will positively impact affordability across the board, some markets are poised to experience a more significant jump than others. This is primarily due to the interplay between local income levels and home prices.
Bottom Line: The combination of lower mortgage rates and a healthy local affordability score can significantly enhance the homebuying prospects for many Americans. If you're an aspiring homeowner, it might be prudent to consider these factors when evaluating potential markets. By understanding how local affordability scores are calculated and how they can fluctuate with market conditions, you can be better equipped to make informed decisions on your homeownership journey.
