Homebuyers’ budgets flattened between 2021 and 2022, posting the smallest gain since 2020, according to a new analysis.
The maximum budget of homebuyers only increased by 0.3 percent between the first four months of the year in both 2021 and 2022, meaning homebuyers’ budgets stayed essentially flat during a period in which prices increased a record 22.6 percent across the nation, according to a new report released Monday by Redfin.
The main driver of the uneven growth has been the dramatic rise in mortgage rates, which shot up beyond 5 percent for the first time in years this past month. Higher mortgage rates have made homes more expensive for buyers. At the current 5.2 percent mortgage rate a buyer on a $2,500 monthly budget can afford a home priced at $427,000, whereas when rates were at 3 percent a buyer with the same budget could have purchased a $517,500 home, the report notes.
The failure of homebuyers’ budgets to keep pace with massive home price growth is the latest indication that price growth has hit its peak and will start to slow in the coming months, the report argues.
“When mortgage rates go up, buyers’ budgets go down,” Redfin Deputy Chief Economist Taylor Marr said in a statement. “And when buyers’ budgets go down, sellers have to meet buyers where they are. Budgets haven’t fallen from a year ago and we don’t expect home-sale prices to fall, either. But the fact that budget growth has slowed so significantly is one sign among many that home-price growth will continue to slow as the year goes on.”
Slowing price growth will be good news for buyers, and may give them the upper hand in the market at some point, but they will still have to contend with mortgage rates that show no signs of dropping significantly any time soon.
“Buyers are qualified to borrow less money because of rising rates, which means they’re searching for less expensive homes,” Fresno Redfin agent Dennis Rozadilla said in a statement. “There’s still limited supply and a surplus of buyers, but buyers are pickier now and their budgets are more limited.”