BAM Key Details:
- A new Redfin report shows only 1 in 5 home listings was affordable for the typical U.S. household in 2022, down from 2 in 5 in 2021.
- Only 9% of homes for sale in 2022 were affordable for the typical Black household—less than a third of the 28% affordable for the typical white household.
- The decline in housing affordability is due to high mortgage rates, persistently high home prices, and low inventory levels.
Only 21% of for-sale home listings in 2022 were affordable for the typical U.S. household, down from 40% in 2021. That 21% is also a record low, according to a new Redfin analysis of for-sale listings in the 100 most populous U.S. metros.
It gets worse. Only 9% of available homes for sale were affordable for the typical Black household—less than one-third of the 28% affordable for the typical white household.
Here’s what you need to know.
Affordable home listings dropped by 53% in 2022
A home listing is deemed affordable if the estimated monthly mortgage payment—based on the home price and the going rate for the 30-year fixed—does not exceed 30% of the median income for the local county.
The number of home listings that meet that requirement dropped 53% in 2022, compared to a year ago, marking the biggest annual drop since at least 2013, when Redfin started recording this data.
While we can partly blame the general decline in listings (new listings dropped 10% year-over-year), the main culprit is mortgage rates, which more than doubled last year, ramping up monthly payments and making available listings significantly less affordable.
3 Factors behind the housing affordability crisis
The housing affordability crisis is due to three persistent issues in the U.S. housing market:
- High mortgage rates
- High home prices
- Low inventory
Mortgage rates in 2022 started from 3.22% in January and more than doubled to a high of 7.08% at the end of October, with a year-long average of 5.34%.
With the Federal Reserve’s continuing efforts at bringing inflation under control, expect another interest rate hike at the March FOMC meeting, which may drive mortgage rates higher than they already are at 6.97%. For reference, a rate of 6.65% increases the monthly mortgage payment on the median-priced home by over $500 compared to a year ago.
As for home prices, the pandemic home-buying frenzy caused an explosion in home prices, which rose faster than incomes.
And while they’ve fallen 12% from their peak last May, they’re still about 32% higher than they were roughly three years ago when the pandemic started.
Inventory is the third major cause. Simply put, there aren’t enough homes for sale—and even fewer homes worth buying. That shortfall in supply is what’s keeping home prices from tanking.
January 2020 had fewer new listings than any month on record, with the exception of April 2020, when the pandemic put the housing market on hold.
Housing affordability is at the lowest level in history, which will widen the wealth gap—especially between millennials,” said Redfin Deputy Chief Economist Taylor Marr. “Many millennials were able to buy their first home before or during the pandemic homebuying 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.
The good news, according to Marr, is that we should see an improvement in housing affordability from three different directions.
Mortgage rates are expected to decline this year as the Fed makes progress in its fight against inflation. Also, home prices have already begun to drop in many markets, further improving affordability. And incomes are growing faster than the historical average.
Also, some states, including California and Oregon, have passed legislation allowing for the construction of more starter homes. An increase in housing supply could help slow home price growth. And the new laws, if executed well, could inspire other state and local governments to do what they can to make homes more affordable.
Only 9% of for-sale homes were affordable for the typical Black household
Only 9 out of a hundred for-sale homes on the market were affordable for the typical Black household, the lowest share of any race in Redfin’s analysis, compared to—
- 28% for the typical white household
- 14% for the typical Hispanic/Latino household
- 34% for the typical Asian household
Housing affordability has also declined slightly faster for Black households compared to white households.
Put another way, the share of for-sale listings affordable for the typical Black household was cut in half—from 18% in 2021 to 9% in 2022—while the share of homes affordable for the typical white household dropped by less than half (50% to 28%).
The number of for-sale listings affordable for the typical Black household fell a record 57% in 2022, compared to 2021—a steeper decline than for any other race in Redfin’s analysis—while the number of for-sale listings affordable for the typical white household dropped a record 49%.
Hispanic/Latino and Asian households also saw record drops in the number of affordable for-sale listings.
Housing has become incredibly unaffordable for a lot of Americans, but Black families have been hit especially hard because they’re often less wealthy to begin with. On average, Black Americans earn less money, have less generational wealth, and have lower credit scores (and sometimes no credit scores at all) than white Americans. That makes it tougher to afford a down payment and qualify for a low mortgage rate. They also frequently face racial bias during the homebuying process.
From the least affordable metros to the most affordable ones, the racial housing affordability gap remains a nationwide issue. In Detroit, for example, the typical Black household could afford 33% of home listings last year—the highest share in the U.S., but still less than half the 70% affordable for the typical white household.
In Los Angeles, one of the priciest housing markets in the country, most people have a difficult time finding affordable homes. But Black home shoppers have even fewer options, with close to zero (0.1%) affordable home listings in 2022, compared to 2% for the typical white household.
According to Redfin’s Chief Economist Daryl Fairweather, the Black unemployment rate has been on a downward slide, on a seasonally-adjusted basis, which is helping to shrink the gap between the Black and white unemployment rates.
Rent growth across the board is also slowing, which has a disproportionate impact on Black Americans, since they’re more likely to be renters.
And with home prices showing an annual decline for the first time in a decade, according to another Redfin report, there’s reason to hope that housing affordability will improve for all, especially if mortgage rates decline as they’re expected to by the end of the year.
In the meantime, we still have work to do to shrink the racial housing affordability gap. The latest announcement by the Biden-Harris administration on reducing mortgage insurance premiums is a step in the right direction. Another step could include expanding down payment assistance, which would help reduce monthly mortgage payments.
Pandemic hotspots and pricey coastal metros see biggest declines in affordable homes
Compared to 2021, every one of the 100 most heavily populated U.S. metros had fewer affordable for-sale listings in 2022.
In Boise, Idaho, the number of for-sale listings affordable for the typical local household plummeted 86% compared to a year ago, followed by—
- San Diego, CA (-85%)
- Salt Lake City, UT (-84%)
- Oxnard, CA (-83%)
- Austin, TX (-82%)
In some of the metros listed above, including San Diego and Oxnard, CA, which were already expensive, many homes were on the edge of affordability before the pandemic and have since crossed that threshold, thanks to rising home prices and mortgage rates.
Other metros, including Boise, Salt Lake City, and Austin, saw much of their housing shift from relatively affordable to unaffordable for many home shoppers as remote worker migration ramped up their popularity.
Relatively affordable metros like Detroit saw the smallest annual declines in their numbers of affordable homes:
- Detroit, MI (-16%)
- Akron, OH (-24%)
- Cleveland, OH (-25%)
- Pittsburgh, PA (-27%)
- Philadelphia, PA (-28%)
Top takeaways for real estate agents
The harder it is to find affordable homes, and the more competition there is for them, the more likely buyers are to waive contingencies—something many regret down the line. If you have your doubts, encourage your buyer clients to insist on the inspection so they can weigh the costs of any necessary repairs or modifications.
Just because a home is for sale doesn’t mean it’s worth the asking price. Always protect your client’s interests.
Show them the data and help them weigh the costs of buying vs. continuing to rent (and save as much as they can) until market conditions are more favorable to them.