More buyers believe they can find an affordable home
A new trends survey found that while most buyers still have trouble finding homes that fit their budget, more are optimistic about their chances.
Key points:
- The share of buyers who say most available homes are affordable doubled between the end of 2022 and the first quarter of 2023
- Buyers in the West had the biggest jump in affordability expectations compared to other regions.
- A separate report finds that plenty of people are still looking in other parts of the U.S. for more affordable homes.
Buyers are becoming increasingly optimistic about their ability to afford a home, further fueling the idea that stronger demand is coming later this year.
The National Association of Home Builders' trends survey found that while nearly three-quarters of buyers (73%) said they could afford fewer than half the homes for sale in their market in the first quarter, that number is down significantly from a record high of 87% at the end of 2022.
Put another way, the share of buyers who now believe most homes in their area are affordable doubled between the end of 2022 and the first quarter of 2023.
Changes in buyers' attitudes tend to make a big difference as people try to get into homeownership.
"Affordability will always be a challenge. In terms of buyers' perceptions of affordability, any drop in rate or moderation in home prices will lead to more buyers feeling able to achieve homeownership," Rose Quint, assistant vice president for survey research at NAHB, told Real Estate News.
Market forces boosting expectations and demand
The increase in reported affordability is tied to interest rates remaining below 7%, slowing price growth, and builder incentives that are making an impact on buyers' expectations, said Quint.
"Slowing home prices and (expected) lower mortgage rates later this year will increase housing demand," Quint said. "The good news is that those rates will also lead more existing owners to list their homes for sale and thus increase supply."
Affordability expectations improved in all regions of the U.S., but the West had the biggest gains, with the share of buyers who could afford fewer than half the available homes dropping from 87% to 66%. The Northeast and Midwest also had double-digit improvements, while the South improved by seven percentage points.
Buyers still chasing affordability across the U.S.
While home searches are down compared to a year ago, many buyers still appear interested in relocating, according to a new Redfin report. The number of searches within a metro area fell about 16%, reflecting the general market slowdown, while relocating searches fell just over 4%.
Overall, more than a quarter of Redfin searches are focused on relocating — a record share. Relatively affordable areas like Las Vegas, Phoenix and parts of Florida are some of the most popular destinations, while San Francisco, New York and Los Angeles continue to have the highest numbers of outbound movers.
Quint expects the population shift away from expensive areas like New England and California and into more affordable areas in the South and Mountain West to continue. It's not just about housing affordability, she said, but also because taxes are typically lower and many buyers prefer the weather.
Expensive coastal metro areas are seeing fewer declines, however, as immigration has rebounded.
"Several years of declining immigration, compounded by Americans flowing out of big coastal cities during the pandemic, resulted in many major coastal cities losing population," said Redfin Deputy Chief Economist Taylor Marr. "Last year's immigration rebound was a boon for those cities, which take in most of the people who move to the U.S. from other countries. For the housing and rental markets, the recovery should add enough demand to at least partly make up for the existing residents who move further inland."