"Mortgage
rates dropped significantly this week, providing some relief to homebuyers even
as home prices are reaching new record highs. According to the mortgage finance
provider Freddie Mac, the 30-year fixed mortgage rate plunged to 2.78% from 2.88%
the previous week.
Nevertheless,
many first-time homebuyers are being priced out despite these historically low
mortgage rates. While inventory is especially limited in the price range of a
starter home ($270,500), the affordability gap between first-time homebuyers
and all buyers is 34%. To put it simply, buying the typical starter home is
more expensive for a first-time homebuyer than it is for any other buyer to
purchase the typical home, even though the starter home is less expensive.
According to NAR, the affordability index for first-time homebuyers was 116.8
compared to 177.4 for all buyers as of the first quarter of 2021. Keep in mind
that a higher index translates to a better affordability.
Thus,
building more starter homes could help more renters to become homeowners.
First-time homebuyers who bought their starter home 3 years earlier have
already built more than $60,000 in equity due to the price appreciation."
