In today’s housing market, sellers continue to dominate with competitive prices and fluctuating rates. However, a recent Zillow study reveals that some states are more affordable for prospective homebuyers.
Texas and Florida Top Zillow’s List
Texas and Florida cities comprise seven of Zillow’s top 10 best places for homebuyers, thanks to new-build homes reducing competition slightly. Texas markets like Austin and San Antonio have seen significant increases in inventory, with San Antonio up by 27.4% and Austin by 11%. Florida’s Tampa, Orlando, and Jacksonville also experienced substantial inventory growth, with Tampa leading at 50.1%, followed by Orlando at 41.6%, and Jacksonville at 37.2%.
"Prospective buyers in most markets today are feeling less intense competition than in recent spring shopping seasons. Pressure is easing up as mortgage rates raise costs and sellers return," said Skylar Olsen, Zillow’s chief economist. "However, the pool of homes for sale remains remarkably low. This means the nation remains a seller's market despite high mortgage rates — homes are selling faster, with more buyer interest over any one listing, than pre-pandemic."
Underwater Mortgages Rise in the South and Midwest
While homebuyers find some relief in Texas and Florida, other Southern and Midwestern states are facing challenges with high-cost mortgage payments. ATTOM’s Home Equity & Underwater Report shows a decline in equity-rich properties, dropping from 46.1% in Q4 2023 to 45.8% in Q1 2024. Conversely, the percentage of seriously underwater mortgages increased from 2.6% to 2.7% during the same period.
"Homeowner balance sheets continue to benefit in a huge way from the boom times in the form of elevated equity that can be used to help finance all kinds of things, from home renovations to business startups. Still, the windfalls are starting to erode bit by bit amid mounting signs that the market is no longer so super-heated," explained Rob Barber, CEO of ATTOM.
Kentucky saw one of the largest declines in equity-rich homes, from 35.4% to 28.7%. South Carolina's equity-rich homes decreased from 42.4% to 40%, while Georgia, Delaware, and Indiana also faced declines.
Equity-Rich States Show Modest Gains
Despite these challenges, nearly half of the U.S. states experienced slight increases in equity-rich levels. Western and some Midwestern states saw the most significant gains, with Hawaii’s equity-rich homes rising from 55% to 56.5%, South Dakota from 49.8% to 51.5%, and Montana from 57.3% to 58.7%.
The Impact of Rate-Lock on Home Sales
High interest rates have led to reduced existing home inventory, causing a significant rate-lock effect. This phenomenon has resulted in an estimated loss of 1.3 million home sales from Q2 2022 to Q4 2023, with California alone accounting for 182,490 of these sales.
The Federal Housing Finance Agency reported, "For every percentage point that market mortgage rates exceed the origination interest rate, the probability of sale is decreased by 18.1%." As interest rates rise, homeowners are less inclined to sell.
Ralph McLaughlin, Realtor.com’s senior economist, commented, "Mortgage rate trends aren't likely to bust the lock-in effect until at least the end of the year, and possibly well into 2025, as the Fed holds fast on fighting inflation. likely need to see a 150 to 200 basis points drop in the 10-year yield to get there, and at current spreads, this could require three to four rate cuts by the Fed. As of now, the market is pricing in just one to two cuts by the end of the year and two to three cuts in 2025."
With high prices, elevated interest rates, and low inventory levels, the housing market remains challenging for buyers.