In June, America’s home prices rose by 3.4% from the previous month. Although this rate remains significantly lower than its 2018 level, Redfin indicates that home price appreciation has now grown by a whopping 9% in the nation’s most affordable markets.
“Home prices were up 3.4% in June, a modest growth rate compared to the 7 to 9 percent price jumps regularly seen in early 2018, and mortgage interest rates are lower than they’ve been in nearly two years,” Redfin writes. “But the rampant home-price growth in the most affordable segment of the housing market is problematic for working- and middle-class buyers, the group of people who would have the most trouble affording any home.”
According to Redfin, this lack of affordable housing is another indication of America’s growing affordability crisis.
“Now that the economic expansion is in its 10th year, some working- and middle-class Americans are finally starting to see wage increases significant enough to ready them buy their first homes,” Redfin Chief Economist Daryl Fairweather said. “But economic growth is a double-edged sword for the housing market. The increase in demand for low- and moderately-priced starter homes is pushing up prices for the most affordable segment of the market.”
Fairweather explained that within the next few years, prices for the most affordable homes are likely to continue growing rapidly. This will eventually push homeownership further out of reach for America’s low-income population.
This could be said for homeowners in Camden, New Jersey and Detroit, which were home to the biggest home-price gains for the most affordable homes. In these usually affordable housing markets, home prices rose by 28% and 22.7% year over year in June.
Redfin Agent Adam Rasor said there are is now an imbalance of demand and affordability in Detroit, which has led to an increase of competition.
“There are simply more homebuyers than homes for sale at the more affordable price point here in Detroit, which makes that part of the market more competitive and eventually drives up prices,” Rasor said. “The other piece of the puzzle is that we get quite a few people moving into Michigan from more expensive places like Chicago, Seattle and California specifically for the affordability.
“And those people aren’t selling a million-dollar home in California to buy another million-dollar home in Detroit,” he adds. “They tend to want to cut their housing payments substantially while still getting something larger for a growing family.