Potential new borrowers are feeling the weight of higher-than-usual mortgage rates and lower-than-usual inventory this year.
The median renter, also considered the median first-time home buyer, could only afford 29% of homes for sale nationally in the first quarter of 2024, down from 34% a year ago, according to First American Data & Analytics’ Q1 2024 First-Time Home Buyer Outlook Report.
That’s unless they roll with the likes of Johnny Cash or Elvis Presley, since Memphis, Tenn. happens to be the only market where more than half (55%) of homes were affordable to the median FTHB in Q1 2024.
Several markets teetered on the verge of being affordable, according to First American’s analytics. They included Cleveland (49%), Louisville, Ky. (47%), and Pittsburgh (45%).
The least affordable markets were Los Angeles (1%), San Diego (2%), San Francisco (3%), San Jose, Calif. (3%), and Sacramento, Calif. (4%). In L.A. – the least affordable market – the median FTHB could afford a $280,000 home, but the region’s median sale price was $920,000.
A number of factors have kept renters on the sidelines. Perhaps the most impactful were mortgage interest rates, which were 40 basis points higher in Q1 2024 than Q1 2023, averaging 6.75%. Median house prices also increased over the same period. However, there is a light at the end of this tunnel, those who study the housing market say.
“Although housing supply is still historically low, the slight uptick in inventory compared to a year ago might help to further ease some pressure on home prices,” First American Chief Economist Odeta Kushi said in a statement. “Finally, the Federal Reserve has signaled that a rate cut may be in store for this year if inflation continues to cool, which may lead to an easing in mortgage rates. While housing affordability is low for potential first-time home buyers, slowing price appreciation and lower mortgage rates could help – so the dream of homeownership isn’t boarded up just yet.”
Annual home price growth has slowed for five consecutive months, according to First American’s Home Price Index (HPI). Meanwhile, household income increased by 4.5% between 2022 and 2023.
