Buyers are getting less home for their money
Buyers in the 100 largest cities have lost up to 1,140 square feet of living space due to higher prices and interest rates.
- Compared to last year, buyers' purchasing power — and the size of home they can afford — has shrunk.
- Buyers in markets like Miami, where home values increased 25% year-over-year, are having to “make the sacrifice on square footage.”
- Losing square footage can mean giving up one or two bedrooms for a smaller home.
In the frenzied South Florida real estate market, where home prices are persistently high, real estate agent Armando Palma is advising prospective buyers to "make the sacrifice" on square footage and opt for a smaller house.
"Homebuyers can either make it or they can't with houses in their price range and budget," said Palma, who owns Palma Realty Group, which has been operating in Hialeah for 25 years.
"Buyers are having to shop for homes in areas where costs are lower and then also make the sacrifice on square footage," Palma said. "That may mean settling for a two-bedroom house instead a home with three or four bedrooms."
Palma described as "crazy" the single-family home prices in the greater Miami area that include the historically middle class communities of Hialeah and Miami Gardens.
The Federal Housing Finance Agency reported this week that housing prices rose by more than 12% from Sept. 2021 to Sept. 2022, increasing in 98 of the 100 largest cities. Miami had the highest home price gains at 25%.
"Everyone is looking for more price-effective homes in South Florida, but it's difficult," said Palma. "I am about to list a property for $600,000 in Hialeah," a formerly working class community with Latin American roots.
As prices continue to rise, buyers are unable to get as much home for their dollar. According to a new report from data analysis firm Point2, U.S. homebuyers can no longer afford the "amount of space they could buy just a year ago."
The Point2 study estimated that homebuyers who waited to purchase this year when rates hovered close to 7% have lost between $150,000 and $200,000 in buying power.
Rising interest rates and high home prices are largely to blame, and many buyers are forced to consider smaller spaces that better fit their budget.
Point2's analysis was based on a 30-year fixed mortgage, 20% down payment and a mortgage payment of less than 30% of median household income. Researchers compared "how much house" buyers could afford last year with the 3% mortgage rate vs. in November 2022 with a 7% rate.
They found that buyers in the nation's 100 largest metropolitan areas, including Miami, New York, Los Angeles and San Francisco, lost up to 1,140 square feet of living space due to higher housing prices and mortgage rates. Fort Wayne, Indiana, topped the list of cities with the biggest losses, and New York City lost the least — 92 square feet.
While the loss of under 100 square feet "might not even phase a buyer in Texas, where homes are sprawling and abundant living space is almost a given," for buyers "in a high-density, space-strapped place like NYC, that number is a disaster," said the authors of the report.
"The housing market keeps getting tougher for buyers," said Carmen Rogobete, Point2 spokeswoman. "With the average mortgage rate nearing 7% and home prices still in the stratosphere, homebuyers are losing purchasing power. But more than that, they are also losing living space."