Housing affordability hits historic low

Fewer than a quarter of homes listed for sale nationwide qualified as affordable for the typical U.S. household, according to a new report shared exclusively with The Hill. 

The report, released Friday by real estate brokerage Redfin, found that the number of affordable listings in 2022 fell by more than half from the previous year — the largest annual drop on the company’s record dating back to 2013. 

Redfin analyzed home listings in the nation’s 100 most populous metros, marking a listing as affordable if its estimated monthly mortgage payment did not exceed 30 percent of the local county’s median income. 

“Housing affordability is at the lowest level in history, which is widening the wealth gap—especially between generations,” said Redfin deputy chief economist Taylor Marr.  

“Many millennials were able to buy homes before or during the pandemic homebuying boom, but many others were priced out of homeownership and forced to keep renting,” Marr added. 

This was due largely to a combination of persistently high prices and surging mortgage rates, which peaked late last year. 

Yelena Maleyev, an economist with KPMG, told The Hill the duo of high prices and high mortgage rates have drastically eroded affordability even though prices have come down from the pandemic peak. 

“That kind of double whammy, that double pain that folks are feeling, [is] keeping them essentially sidelined for longer … especially those who are maybe at the lower income level or the first-time buyer that can’t sell an existing home and use that money to buy that move-up home,” she said. 

Yet it’s not only mortgage rates and high prices impacting buyers. 

Ken Ralph, a consultant in Boston, told The Hill prices were a big deal in his home search in the last year, but so were poor listing descriptions.   

“The descriptions of the available properties are misleading and confusing. You have to actually go see the thing to tell if it is what they say it is,” Ralph said in an interview.  

Affordable homes accounted for slightly less than 9 percent of listings in Boston last year, according to the Redfin report.

The growing racial homeownership gap

Redfin’s analysis also found that for the typical white household, around 28 percent of homes were considered affordable. But for the typical Black household, availability plummeted to just nine percent.  

“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,” Redfin chief economist Daryl Fairweather said. 

“On average, Black Americans earn less money, have less generational wealth, and have lower credit scores (and sometimes no credit score 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.” 

One way to improve the growing disparity is new construction, Fairweather told The Hill. 

“The Black-White Income gap needs to shrink and, in order to do so, more affordable, multifamily homes need to be built for first-generation homeowners looking for a starter home,” Fairweather said. 

A separate report released Thursday by the National Association of Realtors (NAR) found that the homeownership gap between Black and white buyers increased in 2022 to its widest level in a decade. The Black homeownership rate in 2021 was 44 percent, while the white homeownership rate was 72.7 percent, NAR’s report found.

“Unfortunately, the incredible affordability challenges of the last year have hit minority home buyers more than White buyers,” Jessica Lautz, NAR deputy chief economist and vice president of research, said in a statement. 

“Black buyers are more likely to be first-time buyers, who are more sensitive to changes in mortgage interest rates, while White buyers are more likely to have housing equity to rely on as they make a housing trade.” 

Why the Fed is making homes less affordable

The Federal Reserve’s ongoing battle to stifle inflation has pushed up mortgage rates following a series of jumbo interest rate hikes. After reaching record lows of under 3 percent earlier in 2021, the 30-year fixed rate mortgage jumped to more than 7 percent before dipping back down at the beginning of the new year.  

The average rate last year was 5.34 percent, up from 2.96 percent in 2021. 

The central bank is expected to raise its interest rates several more times this year, putting more pressure on the housing market and raising mortgage rates. And this could lead to price declines, Maleyev said. 

“So obviously, that would allow for some of that affordability reprieve in the regions that would see the higher declines,” she said. 

“But again, these types of declines, when you think about how high they’ve come up, we’re not thinking about prices coming back down to, let’s say, February 2020 levels. They are still going to be elevated compared to that period, and mortgage rates will still remain high.”