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Affordability Crisis Update: Current Homebuyers Lost More Than Just Buying Power

Homebuyers in America's 100 largest cities can no longer afford the amount of space that they could buy just one year ago: The average buyer lost the equivalent of 1 to 9 bedrooms due to increasing home prices and interest rates.

by Andra Hopulele
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7 min. read
  • 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. 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.
  • Given that the average size of a bedroom in the U.S. is 132 square feet, a simple calculation reveals that those losses represent the equivalent of 1 to nearly 9 bedrooms.
  • Buyers in the 26 most affected cities lost the equivalent of 5 to 9 bedrooms worth of space.
  • At the other end of the spectrum, buyers in 9 cities lost approximately 2 bedrooms or less. This may sound like good news, but in crammed urban hubs like New York, San Francisco, and Los Angeles, 1 or 2 bedrooms can make a world of difference.
  • 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. This represents a net loss of $243,121 in buying power.
  • Buyers in San Jose, CA also lost more than $200,000 in purchasing power, while home seekers in 8 other cities lost between $150,000 and $200,000 in buying power following the latest rate increase.
  • With affordability eroding, the homes that cash-strapped buyers can choose from are disappearing: 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.

 

The amount of space the average homebuyer could afford in 2021 and what they can afford right now are two very different things. When the interest rate was hovering around 3%, the pain of soaring home prices was just a dull ache compared to the major burden it has become. Now, with rates crossing the psychological barrier of 7% (a level not seen in more than two decades) the consequences for homebuyers are crushing, as the latest Point2 analysis showed.

For example, New Yorkers on a median income earned $68,000 in 2021 and were able to afford a $320,000 home, under just the right conditions: Specifically, that assumed a 20% down payment that was already covered, as well as a 30-year, fixed-rate mortgage that wouldn’t require more than 30% of their monthly income.

Fast forward to November 2022 and the average New Yorker makes $71,601. But, because of the fast-climbing prices and eye-watering interest rates, they can now only afford to spend $245,997 on a home — $73,000 less.

So, what does it actually mean that a homebuyer in New York lost $73,000 in purchasing power? Well, it means that 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.

 

Biggest Space & Money Losses: Fort Wayne, IN Buyers Lose Equivalent of 9 Bedrooms

Potential buyers in 60 other cities lost 500 to 1,000 square feet, or approximately 4 to 8 bedrooms

Although home size in the U.S had been on an upward trend since 1973, the pandemic really made everyone hungrier for space than ever. In that respect, American homebuyers really have been fortunate, as the U.S. has some of the most spacious homes in the world.

But this advantage of U.S. homes is quickly becoming a massive drawback: With sky-high home prices and rising mortgage rates, big homes are becoming untouchable. 

But, if losing purchasing power sounds like a far-removed economic term, losing living space puts things into a totally different light for home seekers. That’s because it’s becoming increasingly clear that, under the new circumstances, buyers need to give up more and more of their space expectations in order to find something affordable.

And, no prospective homebuyers have given up more than Fort Wayne buyers: In 2021, a home seeker earning the median income in this Indiana city could afford to buy 3,035 square feet (assuming a 20% down payment and a 3%, 30-year, fixed-rate mortgage). But now, with interest rates hovering around 7%, that same buyer can only afford a much more modest 1,896 square feet of living space. Our analysis showed that Fort Wayne buyers lost 1,140 square feet in just a few months, which translates to a staggering nine bedrooms.

Biggest Space LossesWichita, KS, and Chesapeake, VA, followed suit: Buyers here lost 990 and 971 square feet, respectively. That translates to a no-less-depressing seven and eight bedrooms. Similarly, home seekers in 23 other large cities lost the equivalent of five to seven bedrooms.

However, because home prices and the price per square foot vary from city to city and median incomes are also very different, the buyers who lost the most space were not necessarily the buyers who lost the most in terms of buying power. Rather, that infamous list was topped by Fremont, CA: In 2021, homebuyers here could afford homes worth up to $893,390. Now, the average home seeker looking for an affordable home in Fremont would need to find one that costs around $650,269.

Biggest Losses in Purchasing PowerFremont was followed by nine other cities where potential homebuyers lost between $150,000 and $200,000 in buying power in just one year: San Jose, CA; San Francisco, CA; Arlington, VA; Gilbert, AZ; Irvine, CA; Seattle, WA; Scottsdale, AZ; and Chandler, AZ; and Washington, D.C. What’s more, buyers in 33 other large cities lost between $100,000 and $150,000 in buying power compared to 2021.

 

Smallest Space & Money Losses: New York Buyers Lose Slightly Less Than 1 Average Bedroom Worth of Space

Potential buyers in 28 other large cities lost 100 to 400 square feet of living space, or the equivalent of 1 to 3 bedrooms

Although losing the least amount of affordable space of the 100 largest cities in the U.S. sounds like good news, no New Yorker or San Franciscan is going to be happy about it.

Losing 92 square feet of living space might not even phase a buyer in Texas, where homes are sprawling and abundant living space is almost a given. But, in a high-density, space-strapped place like NYC, that number is a disaster.

Smallest Losses in Square Footage fAside from New York, the only other large U.S. cities where buyers lost the equivalent of approximately one bedroom were San Francisco, CA; New Orleans, LA and Boston, MA. In fact, Washington, D.C. — the 10th city on this list — was the only city where buyers lost two full, average-sized bedrooms in just one year due to the climbing prices and mortgage rates. The other nine cities in this category “only” lost the equivalent of one or slightly less than two bedrooms.

Among the top 10 cities that lost the least space compared to last year, California cities Oakland, Los Angeles, and Long Beach, also stood out as high-density business hubs where space comes at a premium.

But, which cities lost the least in terms of buying power? Make no mistake, just like any of the other U.S. cities, these areas were also affected by increasing home prices, rising rates, and incomes that can’t quite keep up. Yet, due to a constellation of slightly more favorable factors, buyers in eight large cities lost less than $50,000 in purchasing power: Cleveland; Buffalo, NY; Detroit; Newark, NJ; Milwaukee; Toledo, OH; Cincinnati; and El Paso, TX. Rounding off the top 10 are Laredo, TX and Memphis, TN. Buyers here lost $53,713 and $57,646, respectively.

Smallest Losses in Purchasing Power f

Inventory of Affordable Homes in Freefall: 3 California Cities Have 0 Homes Priced Within Average Buyer’s Budget

In Anaheim, LA and Irvine, buyers would find no homes within their budget. Meanwhile, affordable inventory in 41 other cities represented less than 10% of total homes for sale.

The fact that affordable homes are almost extinct no longer surprises anyone. Whether it’s renters looking for a starter home or homebuyers looking for their forever home, finding a property that matches their budget would be nothing short of a small miracle — and it’s not for lack of trying.

Home seekers go out of their way to find homes that are within their budget, but that usually means they end up settling for a much smaller home, a home in a totally different location or both. More precisely, some of the challenges and issues plaguing developers and keeping buyers on the sidelines include ever-increasing costs of land, labor shortages, skyrocketing costs of building materials, supply chain issues and zoning restrictions.

 

Despite the corrections from the last few months, home prices remain prohibitively high. That's why, in 97 of the 100 largest U.S. cities, the share of homes at or below the price that the average buyer can afford is (way) below 50%. Housing affordability really seems to be eroding faster than ever. According to Axios:

"The housing sector is overwhelmingly bearing the brunt of the Federal Reserve's efforts to slow down the economy, especially with mortgage rates topping 7%. In effect, the economic pain being wrought in order to reduce inflation is concentrated, to a remarkable degree, to a single sector. The Fed's rate hike campaign is succeeding at slowing the overall economy, but the burden disproportionately falls on those trying to buy, sell or build houses. That makes the policies less effective at bringing down inflation than they might be if the impact were wider."

If affordable inventory is below 50% in 97 of the 100 largest cities, that only leaves three cities where buyers can actually find homes for sale that are within their budget. The three cities that seem to be a haven for affordable housing are St. Louis; Detroit; and Toledo, OH. And, while St. Louis "only" boasts a percentage of 51% (which arguably places it in the category of affordability-challenged cities), Detroit and Toledo have truly impressive shares of affordable housing: 70% and 76%, respectively.

 

Use the filters to rank the 100 largest U.S. cities based on your preferred criteria (such as Losses in Purchasing Power, Losses in Affordable Square Footage or Share of Inventory at Affordable Price).

 

 

Spotlight on Arizona: 810 Square Feet — the Equivalent of 6+ Bedrooms — Simply Vanish in 1 Year for Gilbert Buyers

Gilbert homebuyers, followed by Scottsdale and Chandler buyers, also lost the most in purchasing power.

The largest cities in Arizona lost between 497 and 810 square feet of space year-over-year. In other words, homebuyers here lost between four and six bedrooms worth of space if they decided to wait, rather than buy at this time last year.

In 2021, home seekers earning the median income in Gilbert and Chandler were able to afford more than 2,000 square feet. In fact, homebuyers earning the median income could afford more than 1,500 in almost all of the seven Arizona cities included in the analysis (Tucson is the only exception, but at 1,475 square feet, it still comes very close).

This year, affordable, 2,000-square-foot homes are a thing of the past: Now, the average homebuyer can't afford more than 1,606 in any of these cities. What's more, Tucson home seekers can only afford 978 square feet — the least amount of space of all of the Arizona cities in the analysis.

Analyzing purchasing power, Gilbert house hunters had the most to lose: Based on their income and the then home prices and rates, they were able to afford a $621,675 home in 2021. Right now, although incomes grew as well, they can only afford a $447,579 home. This translates to a $174,097 loss in buying power.

Gilbert was followed by Scottsdale and Chandler, places where people interested in buying were set back more than $150,000. In fact, there was only one city where buyers lost less than $100,000: In Tucson they "only" lost $73,709.

Unfortunately, the share of affordable inventory — meaning the percentage of homes on the market at or below the price that the average homebuyer could afford — just adds insult to injury: With 12%, 11% and 10%, respectively, Chandler, Scottsdale and Gilbert were the only three cities where the share of affordable homes was more than 10%.

At the other end of the spectrum, buyers in Tucson and Glendale would probably have the hardest time finding something affordable, given that the share of affordable homes in these cities was a meager 4%. Yet, this is hardly surprising because Arizona is one of the fastest-growing states. As a matter of fact, Arizona has seen some of the most impressive increases in population, both in numeric and in percentage growth. According to a Brookings analysis of U.S. Census data:

"The states that led in growth rates were mostly in the Mountain West, including Idaho, Utah, Montana, and Arizona, which had annual rates exceeding 1.4%. In terms of numeric growth, the biggest gainers in 2020-21 were Texas (310,000 people), Florida (211,000), Arizona (98,000), and North Carolina (93,000)."

 

Spotlight on California: Of 16 Largest Cities, Bakersfield Buyers Lose Most Space & Fremont Home Seekers Lose Most Money

Potential homebuyers in these cities lost a lot in the last year: $93,832 to $243,121 in lost purchasing power & the equivalent of 1 to 4+ bedrooms.

Homebuyers could afford a lot more house in 2021 (when the interest rate was 3%) than they can right now. Specifically, buyers in Bakersfield could afford 1,833 square feet, while buyers in eight more cities were able to afford more than 1,000 square feet.

One year and several interest rate hikes later, that surface was slashed significantly, in quite a few cities. And it was the most space-rich cities that fell the hardest: Bakersfield lost 592 square feet (or four and a half bedrooms). It was followed by Fresno, Chula Vista, Riverside, Stockton and Irvine, which all lost the equivalent of three to four bedrooms.

What's more, after losing the equivalent of two, three and even four bedrooms, buyers in only three cities (Bakersfield; Fresno; and Stockton) could still afford more than 1,000 square feet of space in 2022, down from nine in 2021. 

Even the potential buyers who lost the least amount of space likely aren't happy about their circumstances. For instance, San Francisco home seekers saw only 138 square feet of living space vanish. But, given the city's high-density and in-demand status, what might look like a small loss by comparison can really sting when taken on its own.

Meanwhile, when it comes to money losses — or, more specifically, losses in purchasing power — potential buyers in Fremont were hit the hardest. They were followed by home seekers in San Jose, San Francisco and Irvine, who lost between $150,000 and $200,000. In this ranking, Bakersfield was at the other end of the spectrum: Buyers here lost $95,720 — second only to Fresno buyers, who lost "just" $93,832.

Analyzing the share of affordable homes in each market, Bakersfield again takes the lead with the most substantial percentage of affordable homes available for sale (15%). Fremont and Fresno rounded out the top three, with shares of affordable homes of 10% and 9%, respectively.

Conversely, Anaheim, Los Angeles and Irvine had zero affordable homes for sale, while affordable homes in Riverside and Chula Vista represented around 1% of all of the homes available for sale. Of course, this is hardly surprising: Keeping up with the high demand here is a real challenge given the scarcity of available land. Although California is a big state, the harsh climate and terrain conditions mean that most of the urban life is concentrated in the coastal area.

 

Spotlight on Texas: Largest Cities Lose Up to 6 Bedrooms Worth of Space & Up to $103,228 in Buying Power

Plano homebuyers lost more than $100,000 in purchasing power in the last year, while also being the most affected in terms of losses in living space.

Plano, TX, led two of the most infamous rankings our study focused on: Biggest losses in terms of purchasing power and most significant losses in terms of living space. None of the potential buyers in any other Texas city lost quite as much as Plano home seekers did.

Coming in second, homebuyers in Lubbock lost 804 square feet, or the equivalent of more than six bedrooms. Similarly, increasing rates eliminated 688 square feet — or five bedrooms — for potential buyers in Irving. To the south, Austin buyers were the luckiest in the state when it came to space: With only 313 square feet of living space slashed, they lost the smallest amount.

However, Austin buyers were not as fortunate when it came to losses in purchasing power: With no less than $89,608 cut from their 2021 affordable price, buyers here saw the second most significant buying power losses after Plano. At the opposite end, El Paso buyers lost just under $50,000 — the smallest amount of all of the Texas cities in the study.

According to the latest Census population estimates, Texas is one of the only three states where the population exceeds 20 million people. It's also one of the areas seeing the most significant overall gains:

"With a population of 29,527,941 in 2021, Texas had the largest annual and cumulative numeric gain, increasing by 310,288 (1.1%) and 382,436 (1.3%), respectively. While gaining population through net international migration (27,185), the growth in Texas in the last year was primarily due to gains from net domestic migration (170,307) and natural increase (113,845)."

As you might expect, such significant population growth definitely puts a strain on housing by increasing demand and adding pressure on prices. Therefore, it's no wonder that, in eight of the largest cities included in the analysis, the share of homes at or under what the average buyer can afford represented less than 10% of all inventory. Austin was at the head of the pack: Here, only 2% of available homes for sale were affordable for the average homebuyer.

Corpus Christi, on the other hand, boasted an impressive share of affordable homes: 24% of homes for sale in the city cost $220,000 or less. Lubbock followed suit with a share of 19% and Laredo took the third spot, with a share of affordable homes of 12%.

 

 

Methodology

  • For this study, we took into consideration the 100 largest U.S. cities, based on the most recent population data from the U.S. Census Bureau.
  • Based on the household median income from each city (assuming a 20% down payment; a monthly mortgage payment including insurance and taxes that doesn't represent more than 30% of the median income; and a 30-year, fixed-rate mortgage), we calculated how much house the median-income homebuyer could afford last year and again this year, taking into consideration the 3% mortgage rate from last year and the 7% rate from November 2022.
  • We also took into consideration property taxes and insurance costs.
  • We then compared the two amounts to calculate how much purchasing power the average buyer lost year-over-year.
  • Based on price per square foot data from Redfin for 2021 and October 2022, we also translated the affordable amounts into affordable square footage and number of bedrooms, comparing 2021 and 2022 results.
  • We also extracted data regarding the share of affordable housing by city to compare percentages and rank the cities based on individual shared of affordable homes for sale.

Disclaimers:

  • Data regarding affordable inventory is highly volatile and is more sensitive to change to  as lower prices more readily attract offers. 
  • The assessed value used for calculating the property tax may be subject to various exemptions, depending on local/zonal policies.
  • Insurance costs may differ, depending on home value, home condition and personal credit score.

Fair Use

We encourage and freely grant you permission to reuse, host, or repost the story in this article. When doing so, we only ask that you kindly attribute the authors by linking to Point2Homes.com or this page so that your readers can learn more about this project, the research behind it and its methodology.

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