Affordable homeownership opportunities evaporate to a historic low
Roughly one in five (21%) homes for sale in 2022 was affordable for the typical household, according to a new report from Redfin (NASDAQ: RDFN). This level is down from two in five (40%) in 2021 and the lowest share on record.
Redfin defines affordable homeownership as occurring if the estimated monthly mortgage payment is no more than 30% of the local county”™s median income. The number of affordable listings fell 53% from a year earlier in 2022, the largest annual drop since Redfin began tracking the data in 2013.
“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 is that housing affordability should improve,” Marr added. “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.”
Redfin also determined that only 9% of homes for sale last year were affordable for the typical Black household, compared with 28% for the typical white household and the lowest share of any race in this analysis. The share was nearly as low for Hispanic/Latino households (14%) and was highest for Asian households (34%).
Affordability has also fallen slightly faster for Black households than for white households. The share of listings affordable for the typical Black household was cut in half (9% in 2022 vs 18% in 2021), while the share affordable for the typical white household fell by less than half (28% vs 50%). The number of listings affordable for the typical Black household dropped a record 57% in 2022 from the year before while the number of listings affordable for the typical white household fell a record 49%.
“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,” said Redfin Chief Economist Daryl Fairweather. “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.”