RALEIGH – It’s about to get harder to purchase a home considered affordable in Raleigh, a new study finds.
In fact, of the 50 most populous regions in the United States, Raleigh’s would-be homebuyers will see the greatest drop in affordability, the report finds.
That’s because of two factors that could result in homebuyers paying more than they would have a year ago, or even a month ago, the economists at the national real estate brokerage firm Redfin describe in the new report.
The team of economists at Redfin, led by chief economist Daryl Fairweather, are predicting that the average mortgage interest rate for a fixed, 30-year term mortgage will increase to 3.9% by the end of the year as the Federal Reserve raises interest rates “in an effort to alleviate inflation,” the report reads.
3.5% to 3.9% = $13,750
Here’s the math.
The typical rate was, as recently as a few weeks ago, about 3.5% before rising to 3.55% during the week ending on February 3, 2022.
A would-be homeowner with a maximum monthly housing budget of $2,000 per month could afford a home priced at $396,000—assuming the homeowner could secure an interest rate of 3.5%.
But if the fixed rate was 3.9%, that same homeowner on the same budget could only contract for a home purchase at a sale price of $382,250.
“Put another way, the monthly payment on a $382,250 home would rise $69 with the higher mortgage rate, to $2,000 from $1,931,” the Redfin report reads.
The difference in purchasing power, attributed just to an interest rate increase of 0.4%, is $13,750.
Sales of ‘most affordable’ housing up, ‘luxury’ down, but home sale prices still increasing in NC
Prices are rising, too
Throughout 2021, the median sale price of real estate in Wake County was $395,000, according to the December 2021 market trends report from Triangle Multiple Listing Service.
But even with mortgage rates rising, prices continue to rise as well. Take, for instance, that the median sale price in December 2021 was $425,000 in Wake County, according to that same Triangle Multiple Listing Service report. The prior December, in 2020, the median sale price was $346,100.
And a Redfin survey found that nearly half of would-be homebuyers would feel more urgency to buy a home if they knew mortgage rates would rise.
“If rates were to rise much further in a typical market, we would expect there to be a turning point: Buyers would go from feeling more urgency to buy to feeling less urgency,” said Fairweather in the report. “That’s because rates would ultimately reach a point where renting is more feasible than buying.”
Not a typical market
We’re not in a typical housing market, however. And the Triangle’s real estate market continues to see soaring median home sale prices, an increasing number of very high value transactions, and low inventory.
“In Raleigh, inventory is down 62.1% from pre-pandemic levels, while year-over-year home values are up 30.7%,” a spokesperson for Zillow told WRAL TechWire today. “Homes are now going under contract 5 days after they’re listed for sale.”
Raleigh’s real estate market is also expected to see typical home value appreciation of some 24% in 2022, according to a Zillow forecast released earlier this year.
“But this isn’t a typical market,” said Fairweather. “Rental prices are soaring too, so instead of renting, many buyers will likely purchase more modest homes in relatively affordable places to avoid increasing their monthly budget. That means buyer demand will remain strong for at least the next month and potentially longer, even as rates and prices continue to climb.”
Rental prices cooled in December, but analysts of the rental market anticipated rental growth to occur in 2022. Redfin previously predicted rental growth of 7.9% nationwide during 2022.
Meanwhile, the Wake County Board of Commissioners is concerned about the availability of housing considered affordable for residents, releasing a report in December 2021 that noted that 1 in 4 residents struggles with the cost of housing.
Cost-of-living ‘crisis’: 25% struggle to find, afford homes in Wake County
Raleigh will see greatest drop in “affordable” homes with rising rates
Redfin’s economists looked at the 50 most populous metropolitan regions in the United States. (Editor’s Note: the Raleigh metropolitan statistical area includes Wake, Johnston, and Franklin Counties).
Among the top 50 regions, Raleigh would see the greatest decline in the number of homes for sale that would be considered affordable using Redfin’s inputs of a monthly housing budget of $2,000, the study found.
“In Raleigh, 46.3% of homes for sale last month were affordable with that budget at a 3.9% interest rate, down from 50.1% at a 3.5% interest rate,” the report reads.
That’s a drop of 3.8%, which outpaced cities like Austin, Tx. (-3.5%), Atlanta, Ga. (-3.2%), and Phoenix, Az. (-3.1%).
Are homes still ‘affordable’?
And, the homes considered most affordable are now also more likely to come on the market to be sold, a recent report found.
Raleigh workers have a median hourly wage of $27.27 per hour, according to the latest data from the U.S. Bureau of Labor Statistics. The City of Raleigh states that the median household income of its residents is $69,333—equivalent to $5,777 per month—and that the median household income within the entire metropolitan statistical area is $80,096—equivalent to $6,674 per month.
Redfin deputy chief economist Taylor Marr told WRAL TechWire this week that out-of-town homebuyers were more likely to seek housing within the city limits and were also, on average, more willing to consider higher priced homes than those currently living in the region.
At $5,777 per month in household income, housing costs of $2,000 per month would place the household among those considered cost-burdened, as more than 30% of household income would be tied up in the cost of living, which includes either rent payments or mortgage, tax, and insurance payment, as well as household utility payments.
Redfin: People moving to NC are looking to spend more on housing
