Virus Fears Fuel Home-Buyer Purchasing Power

The drop in mortgage interest rates fueled by coronavirus fears has given home buyers a big boost in purchasing power in recent weeks, according to an analysis from Redfin, out Thursday.

At a mortgage interest rate of 3.2%, a home buyer with a $2,500 monthly mortgage budget could afford a home that is $51,250 more than in March of 2019 when rates were 4.4%. Put another way, a buyer who could accord a $457,000 home in March of last year could afford a $508,000 home today.

"Potential home buyers now have an extra incentive to buy a home despite all of the economic uncertainty from the coronavirus," said Redfin chief economist Daryl Fairweather. "And, many current homeowners now have the option to refinance their mortgages and gain some extra spending cash each month. Low interest rates won't help with direct impacts of the coronavirus on the economy like declines in tourism and service sector spending, but they will mitigate impacts to housing."

The boost in purchasing power comes at a welcome time for home buyers who have been facing major inventory crunches and intense bidding wars in many markets. In January, the housing supply fell 11% year over year, and there were fewer homes for sale than any time since January 2013.

Despite there being fewer homes for sale in most markets, the share of homes for sale that were affordable on a $2,500 monthly payment nationally increased 1.9 percentage points from 68.6% between March 4 and March 10, 2019 to 70.5% between March 2 and 8, 2020.

The markets where home buyers are experiencing the biggest boost in the share of affordable inventory compared to a year ago were Dallas (+6.2 points), Portland, OR (+5.2 points), and Richmond, VA (+4.3 points).

"I just had a buyer who was at the top of his budget lock in a 2.99% mortgage rate and he is ecstatic at how much more flexibility his finances will have thanks to the interest rate drop," said Portland Redfin agent Meme Loggins. "Another one of my buyers was looking at condos just a few weeks ago because he didn't think he could afford a single-family home, but thanks to the low rates he can now. Home buyers in every price range are excited, even those looking at homes priced well over $1 million. Unfortunately we are still facing competition on every offer, which leads us to drop contingencies and offer above list price. With the inventory crunch, these low rates are definitely adding to the frenzy."

Despite the drop in mortgage rates expanding the range of homes that buyers can afford, the share of affordable inventory on a $2,500 payment fell 3.6 points in Phoenix, 3.4 points in Las Vegas and 1 point in Orlando from a year ago.

Metro-level data is available in the table below and the complete report and methodology are available at https://www.redfin.com/blog/mortgage-rates-drop-on-coronavirus-fears.

Share of Homes for Sale Affordable on a $2,500 Monthly Payment