Lower home prices are offset by high Q3 mortgage rates, which is why first-time buyers are at risk.

First-time buyers were again not welcome in the third quarter housing market. The high mortgage rates and limited listings have made it difficult to find relief from the recent soaring prices.

The good news: There was an increase in the number of homes available for sale, which makes it easier to search a real estate listing site. In some markets, the price growth was even reversed or slowed.

The bad news: Mortgage rates have risen and will likely rise higher, reducing the value of price moderation for buyers who need to finance their purchase. And most buyers do.

The third quarter saw homes becoming slightly more affordable across the country, as well as in the most populous metropolitan areas. Prices have slowed and even dropped in some instances, but this is mostly due to affordability.

The average home price was 5.7 times the first-time buyer’s income in the country and the largest metro areas. Although this is a better quarter than the last, it still falls far short of the 3-times-income benchmark used historically to determine affordability.

Notice: Two significant changes were made to the data sources that were used in this quarter’s analysis. For more information on how these changes might affect the numbers, see the methodology section.

There are two regions that have the most affordable and least expensive metros: the Rust Belt, and West Coast.

Pittsburgh, where homes are listed for 2.9 times the first-time buyer’s income, continues to be the most affordable metropolitan area in the analysis. It is joined by Cleveland (3.3), Buffalo (3.5), St. Louis (3.6) and Detroit (3.8).

The most difficult places to buy homes are Los Angeles and San Diego, which were listed at 11x first-time buyer income. San Jose, California (8.6), San Francisco (7.6) were also among the top ten.

To see a table showing affordability metrics for all locations, click here

Guidance for first-time buyers: While home prices might be lower in your area, they are just one aspect of affordability. If your income has grown at a healthy rate over the past year, inflation will eat into your budget. Even though prices are lower, adding higher mortgage rates can make it more difficult to afford. Keep these things in mind when deciding whether it is a good time for you to buy.

Although list prices are still higher than last year, they have stagnated in most metropolitan areas and across the country when compared to the previous quarter. Some areas have seen them fall. This is great news for buyers. However, the price of real estate has risen so much in the last few years that it will take more than a slight dip or plateau to reduce affordability.

Nationally, list prices decreased by 2% quarter-over-quarter, while still maintaining a 6% edge over Q3 2021 after accounting for inflation. List prices in the major metro areas fell 2% over the quarter, while rising 3% for the year.

First-time buyer guidance. Lower home prices can offset interest rates hikes to a certain extent. However, it can also work in the opposite direction. To arrive at a monthly payment that is comfortable, you need to keep an eye on the changing numbers. Compare rates and shop around for mortgage lenders. After your mortgage loan approval, ask your lender to lock your mortgage rate. Rate changes that have a monthly impact of hundreds of dollars can occur quickly in this environment. Locking in a rate gives you some assurance that, even if rates rise significantly, you will still be able afford the mortgage at closing.

In the United States, there were 50% more homes for sale than last quarter. There was no decline in listing activity quarter over quarter for any of the 50 metro areas we studied. Overall, listings rose 59%, on average. The markets that most needed them most saw the biggest gains.

Active listings rose by at least 100% in five metro areas: Salt Lake City (+100%), Nashville, Tennessee (+107%), Austin, Texas (+115%), Phoenix (+115%), and Raleigh, North Carolina (+120%)

These metros had the greatest inventory gains. They were the ones that suffered from severe shortages in the previous quarters. They are seeing increased listings but still have a deficit.

Raleigh’s list count increased by more than two-thirds to 3,250 last quarter. However, there are still 36% less listings than in the third quarter 2019, which averaged 5,090.

For a list of inventory changes in all metros, click here

First-time buyer guidance. Competition is down due to more listings. Some would-be buyers also are not eligible for the higher mortgage rates. These issues can work in your favor depending on where you are looking for a home, and how the market has changed over time. Learn about the details of your local market. You can get help from an agent, but it’s also worth spending some time looking at and comparing listings to help you establish realistic expectations about the market.

In a highly competitive and expensive homebuying market, inventory and prices have been the greatest issues for the last few years. The historically low mortgage rates are an opportunity for smart buyers to take advantage. Mortgage rates are now a factor, but they could also be a problem.

A $350,000 30-year mortgage at 5.5% interest with an estimated monthly payment of $2,500 and $378,900 interest over the loan’s life, results in a monthly payment approximately $2,500. A 2 percentage point increase to 7%, roughly at current rates, increases the monthly payment by $3,000, and brings the total interest bill up to $540,000.

The majority of buyers don’t have a flexible budget. They can’t afford an extra $500 per month. First, you need to reduce your borrowing. This can be done by either looking at cheaper homes or making a bigger down payment. Even small increases in interest rates can have a significant impact on the type of home that you buy and how long it takes to get those keys. It may not be the right time to purchase if you are unable or unwilling to make these sacrifices. Although the housing market isn’t changing quickly, it can change. You don’t have to put off making a homebuying choice now.