Historically low mortgage rates have sent more and more buyers into the housing market, Redfin reports. But many of these homebuyers are running into an issue: the shortage of supply. And as the law of supply and demand reminds us, the higher the demand and lower the supply, the higher the price. This has been seen especially in prices of the most affordable third of homes, which went up 5.5% year over year during the 12 weeks ending May 31. Even the most expensive third of homes increased, but just by 2%.
This is according to an analysis that divided all U.S. residential properties into five tiers based on Redfin Estimates of the homes’ market values as of early June. This report focuses on the “bottom” or “affordable” tier, i.e. homes estimated to be in the 6th-35th percentile for value, and on the “top” or “expensive” tier, which represents homes estimated to be in the 66th-95th percentile for value. For the purposes of this report, we did not look at the very top and bottom 5% of the market. We will report separately on the top 5% of the market, which we consider to be the “luxury” market.
Redfin agents report that housing demand and competition—especially for affordable homes—are on the rise, driving up prices in this segment of the market even as the coronavirus pandemic continues to take a toll on the U.S. economy. As shown in the chart above, price growth began accelerating for affordable homes and decelerating for expensive homes shortly after the World Health Organization declared COVID-19 a pandemic on March 11.