Prices, Selection Improve for First-Time Home Buyers in Q4
The most appealing features of late 2022’s housing market for buyers — lower prices and increased inventory — were largely caused by their new obstacle: higher mortgage rates.
When mortgage rates hovered around 3%, they played a small role in homebuying budgets, and, if anything, encouraged would-be buyers to make hay. With each fraction of a percentage point increase, however, buyers had to take the impact of interest more seriously. Mortgage rates began climbing from their pandemic lows in the first quarter of 2022; they peaked in the fourth, with 30-year fixed-rate mortgages topping 7% in October and November. And with that peak, demand for homes plummeted. With fewer buyers competing in the fourth quarter of last year, home prices came down 5% nationwide, and inventory increased.
Affordability improves nearly everywhere
Typical income went further toward the purchase of homes in the fourth quarter of 2022 than in the third. Nationwide, homes were listed at 5.4 times first-time home buyer income, compared with 5.7 in the third quarter.
This positive change is attributed to both of the key measures in our affordability ratio — home prices and income. Prices came down and real income grew. Nevertheless, homes remain widely unaffordable, particularly when you consider the common (if outdated) rule of thumb that buyers shop for homes priced at three times their income.
For the first time since this analysis began in the fourth quarter of 2020, though, two metro areas were deemed affordable — Pittsburgh, where homes were listed at 2.6 times first-time home buyer income, and Cleveland, where they were listed at 2.9 times first-time buyer income. Two metros saw small declines in home affordability. In Kansas City, homes were listed at 5 times firsttime buyer income versus 4.9 times in the previous quarter, and in Milwaukee, they rose to 4.8 times first-time buyer income versus 4.7.
In most locations, looking only at homes with prices three times your income right now is unrealistic — your search results would be nearly empty. Instead, find out what homes are selling for where you’re hoping to buy and determine whether those prices are manageable given your personal circumstances. Other debt obligations, current mortgage rates and the size of your down payment all play central roles in identifying your target price range. A home affordability calculator can help.
First-time buyer guidance: High mortgage rates drove demand (and prices) down
Relatively high mortgage rates in the fourth quarter continued to bring demand down, leading first to a pause in the white-hot price growth, then price declines in at least some markets.
List prices fell 5% nationwide and