Over the last year, many people interested in a move or a home bought as an investment have scrolled online listings only to find that there's nothing affordable on the market. U.S. home prices rose by 32% in the last three years while homes that fall below a given area's median tend to spike even more dramatically, while new inventory is also not being built fast enough.
All this has come together to create a record low when it comes to affordability -- according to an annual report by real estate platform Redfin (RDFN), only 21% of the homes on the market in 2022 were affordable for a typical U.S. household.
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That number was at two in five (40%) in 2021 and 45% in 2020. At 50%, affordability was highest in 2013 when Redfin first began doing this study.
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This Is What Affordability Means When It Comes To Home-Buying
"Affordable" is classified as having an "estimated monthly mortgage payment is no more than 30% of the local county's median income." By March 2023, the number of such listings was down 53% from a year ago.
Prices are 12% below the peak in May but still extremely high after years of astronomical home price growth. Cities with the biggest drops in affordable listings include Idaho's Boise (86% drop), San Diego (85% drop) and Salt Lake City (84%).
People who have less starting wealth, such as younger or first-time buyers or historically marginalized groups, find themselves in a particularly challenging situation -- Redfin's data shows that only 9% of homes on the market in 2022 was affordable for a typical Black American household while that number is at 28% for white households and 34% for Asian households.
"Housing affordability is at the lowest level in history, which will widen the wealth gap -- especially between millennials," Taylor Marr, deputy chief economist at Redfin, said in a statement. "Many millennials were able to buy their first home before or during the pandemic home buying boom, but many others were priced out of homeownership and forced to keep renting. That means a lot of young adults missed out on a major wealth building opportunity: the value of homes owned by millennials has risen nearly 30% in the past year."
There Is Some Good News When It Comes To The Housing Market
Cities high on this list are generally extremely expensive to begin with, like San Diego, or places that have been seeing an inflow of new residents during the pandemic such as Boise.
The current situation is also exacerbated by high mortgage rates given that the average one for a 30-year-fixed mortgage rose from 2.65% in 2021 to 5.34% in 2022 and 6.65% now. This sent the mortgage payment on a median-priced home up by $500 and pushed out another group of buyers.
While the current numbers reflect years of sky-high home price growth, the mortgage rates are more of a fluctuating factor and a response to inflation. Redfin's prediction that it will improve slightly even if more construction is needed to truly improve the current situation.
"The good news is that housing affordability should improve," Marr said. "Mortgage rates will eventually come down as the Fed makes progress fighting inflation, and home prices have already begun falling. Incomes are also growing faster than the historical norm."
