Despite the fact that home prices continue to rise faster than ever before, more people believe they can afford to buy a home, likely due to sustained record lows in interest rates.
According to a new report from the National Association of Homebuilders, approximately 38% of prospective homebuyers in the fourth quarter said they could afford more than 50% of the homes for sale in their markets.
That’s up from significantly from the previous year, when just 21% of prospective homebuyers said they could afford half the homes on market.
“The increase is an indication that historically low mortgage rates continue to have a stronger impact on buyers’ perceptions of affordability than rising home prices,” NAHB economists noted.
Conversely, the share of buyers who said they could afford less than half the homes for sale in their market fell from 79% to 61% from the fourth quarter of 2019 to the fourth quarter of 2020.
According to the report, the increase came primarily from the two generations that are of prime homebuying age, Gen X and Millennials.
Per the report, the share of buyers among Gen X who said they can afford half or more of the homes on the market rose from 20% in the fourth quarter of 2019 to 45% in the fourth quarter of 2020. Millennial buyers also saw an improvement in perceived affordability, rising from 19% to 41%.
Meanwhile, the share of prospective homebuyers who said they could afford more than 50% of the homes for sale in their markets remained flat among Gen Z and Boomer buyers.