In 15 Years, Home-Buying Power Grew 44%

December 18, 2015

Falling mortgage rates have increased the purchasing power of home buyers by 44 percent since mid-2001, according to a new analysis by John Burns Real Estate Consulting.

The 30-year fixed-rate mortgage plunged from 7.2 percent in June 2001 to 3.9 percent today – which has allowed home buyers to qualify for a 44 percent larger mortgage just due to falling mortgage rates, according to the analysis.

Still, home price appreciation has been outpacing wage growth in 28 of the 30 largest housing markets in the country, the analysis shows.

“Demand and supply imbalances have also contributed to price increases and decreases,” writes Erik Franks in a column for John Burns Real Estate. Prices in nine of the 30 markets have seen more appreciation than the sum of income growth plus the 44 percent mortgage rate benefit. Some of those markets are Los Angeles and San Francisco, which have become more pricey to live in due to rising demand and a limited supply of homes for-sale, according to the analysis.

Other markets such as Chicago, on the other hand, have become less expensive to live.

The chart below highlights the nine markets where appreciation has exceeded income growth.

“While incomes and mortgage rates impact price appreciation, demand and supply conditions can impact home prices even more,” Franks notes.

Source: John Burns Real Estate Consulting