Prices of the most affordable third of US homes jumped 5.5% during the opening months of the COVID-19 pandemic, according to a new report from Redfin. Meanwhile, prices for the most expensive homes rose just 2%.
By May 31, the gap between growth rates for the top and bottom price tiers had widened to 3.5 percentage points, according to Redfin. That’s a reversal of the trend the real estate company had observed prior to the pandemic, when the price-growth gap had narrowed to as little as 1.26 percentage points.
“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 but a lower-priced home in the suburbs for close to what they’re paying in rent.”
Newark, N.J. saw the largest price surge in the most affordable tier, with affordable homes surging 14.7% year over year to a median price of $211,281. Philadelphia and Detroit followed, with prices rising 13.6% and 13.3%, respectively. The only metros that saw prices in the most affordable tier fall were San Jose and San Francisco – “markets where the ‘affordable’ tier is already so expensive that prices don’t have much room to grow,” Redfin said.
The spike in prices in the affordable tier is tied to the continuing shortage of affordable homes for sale. Nationwide, about 322,000 affordable homes were for sale nationwide during the 12 weeks ending May 31, down from 332,000 in February.
“The severe shortage of affordable homes that we’ve been grappling with for years is now being exacerbated by an increase in the number of buyers who are in search of lower-cost houses,” said Taylor Marr, lead economist for Redfin. “Many Americans – especially millennials – were already toying with the idea of buying their first house before the pandemic. Now they’re actually taking the plunge because mortgage rates are so low and it’s less attractive to live in a small apartment right next to the office.”