One Reason Homebuyers Get Mad: Paying More for Less
Increasing home prices and interest rates mean less buying power and effectively smaller houses as a result.
When Mick Jagger sang that you can’t always get what you want, he didn’t mean the US house market. For most people it’s recently been you can’t get what you want period. Now, you get even less than you would have.
Point2, a division of Yardi Systems, has been poking around the data and did an interesting analysis. When prices are up and mortgages are really up, home buyers have to set their sites lower. And smaller.
“Aggressive rate hikes (after the latest increase, the average mortgage rate hovers around 7%), coupled with sky-high home prices mean buyers are bleeding money,” Point2 says. “But, aside from losing purchasing power, homebuyers — and especially post-pandemic homebuyers — are also losing what they wanted the most: More living space. Translating the losses in purchasing power into square footage reveals the saddest story: In just a few months, buyers in the 100 largest cities lost between 92 and a staggering 1,140 square feet of space.”
Where it’s really telling is when considering the size of the average bedroom, which Point2 pegs at 132 square feet, or an 11 x 12 room. That means the loss of space means the equivalent of 70% of a bedroom up to 8.6 bedrooms, depending on the metro area.
“Moneywise, the biggest sting was felt by buyers in Fremont, CA, who went from being able to afford a home worth $893,390 in 2021 to only being able to buy a $650,269 home after the latest rate hike,” the site says. “This represents a net loss of $243,121 in buying power.”
Another example is that in New York, a median income of $68,000 in 2021 let someone buy a $320,000 home if they had the 20% down payment and a low enough mortgage that payments didn’t top 30% of what they made. A year later and now that person could afford $73,000 less. It means, “buyers in an already crammed, space-strapped urban hub — where each square foot of living space is worth its ‘weight’ in gold — just saw 92 square feet of living space simply vanish in a few short months.”
The biggest space losses, though, came elsewhere, like Fort Wayne, Indiana, where buyers lost the equivalent of 9 bedrooms.
“With affordability eroding, the homes that cash-strapped buyers can choose from are disappearing,” the analysis says: “In Anaheim, Los Angeles and Irvine, the share of homes within the average buyer’s budget is virtually zero. And, in 41 other cities it represents less than 10% of the total homes for sale.”