Prices of the most affordable third of homes in the U.S. climbed 5.5% year over year during the 12 weeks ending May 31, while prices of the most expensive third of homes increased just 2%, according to a new report from Redfin.
Price growth began accelerating for affordable homes and decelerating for expensive homes shortly after the World Health Organization declared COVID-19 a pandemic on March 11. By May 31, the gap between the top and bottom price tiers’ growth rates had widened to 3.5 percentage points. This represents a reversal of the trend Redfin observed leading up to the pandemic, when the price-growth gap had narrowed to as little as 1.26 percentage points during the 12-week period ending March 22.
“Spending so much time at home during quarantine has made a lot of people realize that it might be time to stop renting a cramped apartment in the city and time to start owning their first single-family home,” said Pam Henderson, a Redfin agent in Dallas. “With mortgage rates at record lows and remote work on the rise, some renters are having an epiphany: They could buy a lower-priced home in the suburbs for close to what they’re paying in rent.”
In Newark, N.J., the most affordable third of homes saw prices surge 14.7% year over year to a median of $211,281 during the 12 weeks ending May 31 – the largest increase out of the 50 most populous U.S. metropolitan areas.
Philadelphia and Detroit followed closely, with prices jumping 13.6% and 13.3%, respectively.
The only metros that saw prices in the most affordable bucket decline were San Jose (-2.4% to $777,500) and San Francisco (-2.1% to $952,125) – markets where the “affordable” tier is already so expensive that prices don’t have much room to grow.
The jump in prices of affordable homes is tied to a shortage in the number of affordable homes on the market – an issue that has plagued house hunters since 2012 and is showing no signs of letting up.
The gap between the supply of affordable and expensive homes widened further as the coronavirus pandemic worsened. Nationwide, there was a weekly average of about 322,000 homes for sale in the bottom price tier during the 12 weeks ending May 31, down from 332,000 in February. By comparison, there was a weekly average of about 586,000 homes on the market in the top price tier, up from 556,000 three months earlier – in line with expected seasonal growth.
To view the full report, click here.