Record low mortgage rates have been great for homebuyers, but low rates can only go so far in making homeownership affordable, as steadily rising home prices in the D.C. region are beginning to erode those low rates’ impact on buying power.
It is not necessarily just a potentially larger monthly mortgage payment that has rising prices threatening homebuyer affordability.
“In our latest home price index for the Washington, D.C., area, we saw that home prices were up nearly 9% over the last 12 months. That means you have to have a boatload more cash up front in order to meet the down payment and closing costs, and that’s what’s beginning to be a challenge for many buyers,” said Frank Nothaft, chief economist at CoreLogic.
“With further increases in home prices, which I do expect to see here in the Washington, D.C., area in the coming months, that means it is going to be just that much more challenging for homebuyers, especially young buyers looking for their first home,” Nothaft said.
Rising prices have not, as of yet, slowed sales. Pending sales and closed sales in December throughout most of the D.C. region were up double-digits from a year ago.
Some would-be first-time buyers may be feeling pressure to buy now, knowing prices will likely be even higher and year from now. And mortgage rates might be too. But that is not necessarily sound reasoning for all first-time buyers.
“You shouldn’t buy until you are financially ready. When you’re ready to buy, you should do your ‘home’ work, and check out the neighborhoods and what’s available on the market. If you’re in that position right now, then this is an excellent time to buy with mortgage rates at record lows,” Nothaft said.
Currently, it is not just record low mortgage rates that are pushing prices higher. It is the result of record low inventories, or number of homes on the market for sale, too.
That means more buyers competing for fewer homes for sale. CoreLogic said it believes the inventory squeeze may ease by summer.
“We do think that we’ll see some moderation of home price growth in the second half of 2021. I think we’ll see more supply on the market, and that will help moderate price growth,” Nothaft said.