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Cities With the Best Opportunities for First-Time Homebuyers

The incredible increase in demand for homes in 2020, something prompted by a combination of record-low mortgage rates and millennials aging into homeownership, against a very limited supply of homes for sale, resulted in rapid house price appreciation, making things difficult for potential first-time homebuyers, who mostly are current renters. That is according to a report by First American Chief Economist Odeta Kushi.

"The nearly two-thirds of American households who already own homes saw their equity increase, while potential first-time homebuyers, who are nearly always renters, missed out," Kushi said. "While low mortgage rates increase house-buying power and thus improve affordability for potential first-time buyers, low rates also boost demand and, in a supply-restricted market, accelerate house price appreciation, which in turn reduces affordability. Nationally in 2020, this tug-of-war resulted in higher purchasing power, but a smaller share of affordable homes for first-time buyers."

Kushi takes a look at renters' homebuying power, which increased 10% compared with a year ago.

"The increase is primarily the result of a significant drop in mortgage rates to a record monthly average low of 2.7%, she said. "While house-buying power increased, the share of homes for sale that a median renter could afford shrank nationally, falling to 57% in the fourth quarter of 2020, down from 61% one year ago. Even though house-buying power increased, house price appreciation eroded the affordability boost from falling mortgage rates.

But that's nationwide, and what really counts is a would-be homebuyer's purchasing power in his/her region. Kushi's report breaks down those specifics.

The most affordable city for renters considering a first home is Oklahoma City, where the median renter could afford 86% of the homes for sale. In Q4 2020, the median house price in Oklahoma City was $184,000 and the median renter’s house-buying power was $329,000.

The least affordable city is Los Angeles, by a considerable margin, Kushi pointed out, "where the median house price in the fourth quarter of 2020 was $737,000, but the median renter’s house-buying power of $373,000 left only 7% of the homes sold in Los Angeles actually affordable."

For the full report, visit First American's blog.

About Author: Christina Hughes Babb

Christina Hughes Babb is a reporter for DS News and MReport. A graduate of Southern Methodist University, she has been a reporter, editor, and publisher in the Dallas area for more than 15 years. During her 10 years at Advocate Media/Dallas Magazine, she published thousands of articles covering local politics, real estate, development, crime, the arts, entertainment, and human interest, among other topics. She has won two national Mayborn School of Journalism Ten Spurs awards for nonfiction, and has penned pieces for Texas Monthly, Salon.com, Dallas Observer, Edible, and the Dallas Morning news, among others. Contact Christina at christina.hughesbabb@thefivestar.com.

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