Availability is the new accessibility

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Realtors watch prices slip out of reach of their first time buyers in real time. “I’ve seen properties that were listed a few months ago at a single price come back to the market in January or February at a higher price, which tells you everything you need to know,” said Alexander Jean- Baptiste, as a real estate agent with the Massachusetts Affordable Housing Alliance. “It can be a little disheartening to see people getting paid right before our eyes not over the years, but over months or even weeks.”

In the Boston area, even a household earning $ 100,000 could afford to buy just 23 percent of the homes listed in December, according to NAR senior economist Nadia Evangelou. This calculation assumes a 20% down payment, and an affordable mortgage payment is defined as a payment that does not exceed one-quarter of a household’s income.

And yet, by some measures, homes have become more affordable since 2018. How can that be?

Interest rate.

“The cost of a $ 400,000 mortgage can drop by $ 220 per month when the rate drops from 4% to 3%,” Evangelou said. And average rates on a 30-year mortgage hit all-time highs in 2020.

“We have seen a long-term decline in interest rates going back to the 1970s, especially last year,” Hermann said. In July, the average rate on a 30-year fixed-rate mortgage according to Freddie Mac’s Primary Mortgage Market Survey fell below 3% for the first time in nearly 50 years of existence. These record high rates allow buyers to purchase a more expensive home without any change to their monthly mortgage payment.

In fact, when you look at not only home prices but also the monthly cost of homeownership after adjusting for inflation, the mortgage payment on a median-priced US home is about the same today. ‘hui than 20 years ago, if not lower. . “According to our Housing Affordability Index, housing is more affordable now than in 1980 and 2000,” Evangelou said.

For example, the median price of a single-family home in Massachusetts was $ 460,000 in 2020. With a down payment of 10%, a 30-year mortgage at 3.11% (the average rate in 2020) would incur a monthly payment of $ 1,770. , before taxes and insurance.

In 2000, the median price of homes in the state was $ 185,700, but the average rate on a 30-year mortgage was 8.05%, closer to the long-term average. That mortgage would have cost $ 1,232 a month – or $ 1,852 in today’s dollars, after adjusting for inflation. Even the affordable house prices of the early 1980s have been somewhat offset by double-digit interest rates that seem closer to today’s credit card rates.

“The fact that the rates are low right now is basically the only good thing we have for us as home buyers,” said Dana Bull, real estate agent at Sagan Harborside Sotheby’s International Realty in Marblehead.

But with this even welcome mortgage accessibility comes a caveat, Hermann said. “Higher home prices are often going to require a larger down payment, which is often the biggest barrier to homeownership, especially for first-time buyers with low or moderate incomes,” he said. . And most measures of a home’s affordability lack that key data point: the ability to make a down payment. “This is the biggest blind spot of these measures.”

While low down payment loans are available to first-time home buyers, a price hike of $ 50,000 can quickly add thousands of dollars in upfront costs to a home purchase. And first-time buyers with fewer down payments may have a harder time winning bidding wars against buyers with more money on hand.

“Often, salespeople want to prioritize the person who needs to get more by lending,” said Daryl Fairweather, chief economist at Redfin. “And if the price skyrockets and you have to make a bigger down payment, but you’re already at your limit… you’ll be billed faster than someone with more savings.” “

Buyers who are able to forgo inspection or finance clauses also have an advantage in multiple bid situations, Fairweather said. And this further favors buyers with enough savings to absorb the “hidden risks” of a competitive housing market. “If something happens during the home inspection that they have to pay, or if their bank decides the price is too high and not valued at the price they paid for it, then they have to pay more out of pocket in cash, ”she said.

Bull said availability has overtaken affordability as a major concern of its buyers. “The main topic of discussion now is that there is nothing to buy,” she said. “People are willing and able, in many of these situations, to spend $ 900,000 or $ 1 million on a property they see fit. But that’s the problem, finding a property that is worth it when there is nothing to choose from.

“It’s a hyper-selling market right now,” said Steve Medeiros, president of the Massachusetts Association of Realtors. With less than a month’s supply of homes on the market in December, Medieros said – compared to two months in December 2019 and an supply of 4.5 months in 2015 – there are more buyers than stocks, and just being able to afford a house does not. t guarantee that you will succeed in buying one. “I just had an ad, we had seven offers on the property,” he said. “But only one person can buy it.”

“It’s tough there,” said Adam Rosenbaum, real estate agent at Century 21 Adams KC in Arlington. “Yes, the rates are low, which means more purchasing power, but it’s true for everyone. Supply and demand still prevail. Rosenbaum has younger customers who have submitted three bids above the asking price but have not yet landed a winning bid.

Medeiros said there was hope on the horizon in the form of new construction, although it will be some time before enough new homes hit the market to ease the pressure on prices. . New housing starts and building permits have recovered from an early pandemic trough, and the “housing choice” measures long advocated in the state’s recently passed economic stimulus bill will eventually increase prices. inventories by encouraging denser development near MBTA stations and allowing cities to approve new projects and secondary housing by simple majority vote.

A recent development is helping some home buyers right now, however. Those who plan to continue working remotely at least some of the time in the future are now able to consider more remote – and more affordable – areas. “I now work regularly in cities that I rarely visited before,” Rosenbaum said.

The pandemic push towards open suburban spaces has also improved the affordability of downtown Boston. “The best place to be right now is shopping at a resort in town,” Bull said. “The worst place is if you’re trying to buy a single family home in an entry-level to mid-range price bracket out of town.”

Whatever the big trends, however, affordability ultimately depends on whether individual buyers can afford the home they want. And against a pandemic that has devastated entire industries while supporting others, it varies widely. While millions of Americans have lost their jobs or their income over the past year, others have continued to earn steady wages. Even though many of the first group struggle to pay rent, let alone save for a down payment, some white-collar workers have managed to rack up their savings in a year with minimal travel or vacation expenses.

Jean-Baptiste said some of his clients have had to suspend their home searches due to job loss or other misfortune. Meanwhile, others returned to their lenders and found they were now eligible for a larger loan due to falling interest rates. It’s a ray of hope, said Jean-Baptiste. “Instead of being at the back of a multiple offer situation, they’re now on the top – they’re actually getting the properties,” he said.

Bull is also amazed at the fluidity of people’s budgets and how what they consider “affordable” can change completely from week to week. In the past, she said, buyers had a set amount they could afford to pay each month, and it took a long time to change that. But between canceled vacations, postponed marriages and the pandemic’s shifting childcare plans, people’s finances have been more shifting, often resulting in additional savings.

And more often than not, “they’re willing to put that money into a house,” Bull said. “Because it’s the most important thing in everyone’s life right now – being at home.”

Jon Gorey blogs about homes at HouseandHammer.com. Send feedback to [email protected]. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter on pages.email.bostonglobe.com/AddressSignUp.

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