A new analysis from Zillow finds that a $3,000 monthly mortgage payment is buying a little more than it did a few months ago.
As rates have dropped from a peak just above 7%, buyers are getting larger homes, with higher price tags, at a fixed monthly cost. The typical home value associated with a $3,000 mortgage payment is up about $60,000 since October 2022 and home size has recovered by 84 square feet.
"Mortgage rates have a huge impact on the types of homes buyers are able to afford," said Anushna Prakash, economic data analyst at Zillow. "Rates that doubled over the past year carved an extra bedroom or office space off of homes at the national level, though the sting has lessened in recent weeks. Buyers in more affordable hot markets are still getting solid bang for their buck, despite losing a lot of purchasing power."
The decline in buying power is more pronounced, though, in some markets. The largest drop in what $3,000 per month could buy you in 2022 was in Hartford, Conn., where buyers lost 1,200 square feet. Buyers in Indianapolis and Cleveland both lost out on more than 1,000 square feet in the last year. Cleveland and Kansas City are among the Top 10 metros for home size at this price point and are among Zillow's 10 hottest markets for 2023.
In more expensive markets, $3,000 per month has always gotten a buyer less space, but their floor plans are shrinking all the same. In San Jose it will buy a 1,052-square-foot home, down from 1,268 square feet last year. Los Angeles, San Diego, and San Francisco are close behind, with square footage for each below 1,400 square feet.
Since bottoming out in October, home size for a $3,000 payment has increased the most in Salt Lake City, Utah (365 square feet); Minneapolis, Minn. (357); Memphis, Tenn. (346); and Denver (340).
Zillow said home shoppers should look to improve their credit as much as possible heading into the homebuying season.
A borrower with an "excellent" credit score — between 760 and 850 — can qualify for a 30-year, fixed-rate mortgage with a 6% interest rate. For the same loan, a similar borrower with a "fair" credit score — between 620 and 639 — qualifies for a 7.58% rate. This equates to a $348 difference in monthly mortgage payments and nearly $125,431 in interest over the life of a 30-year fixed loan, based on the current price of a typical U.S. home $329,542.
