The housing crisis continues to evolve as a new report shows that fewer than a quarter of homes listed for sale across the country are considered affordable for the typical U.S. household.
The report comes from the real estate brokerage firm Redfin, and it shared that in 2022, the number of affordable listings dropped by 53% compared to 2021, a statistic Redfin says is the largest drop dating back to 2013.
Taylor Marr is the deputy chief economist for Redfin. He shared in a press release that the United States has the “lowest level” of housing affordability in history.
“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 said.
The Redfin report cited the combination of persistently high prices and skyrocketing mortgage rates as the reason for many not getting into the housing market.
Population hotspots weren’t the only places affected by this, as the report noted that several major metropolitan areas across the country saw their affordable listings fall last year, including Minneapolis (-51.9%), Detroit (-16%), Philadelphia (-28%), Pittsburgh (-27%), Dallas (-67.3%), Fort Worth (-69.3%), San Francisco (-53%), Baton Rouge (-51.5%), St. Louis ( -30.5%), and Los Angeles (-80.2%).
Redfin noted in its report that not buying homes carries a massive effect on younger generations building wealth, as it says younger Americans continuing to rent instead of buying is only “widening the wealth gap.”
“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,” Marr said.
In the report, Redfin also found disparities among different racial groups when it comes to home buying while noting that housing has still become “incredibly unaffordable for a lot of Americans,” Redfin chief economist Daryl Fairweather said.
For the average white household, the report says that nearly 28% of homes were considered affordable or within their budget, while for the typical Black household, that number is just 9%.
“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,” Fairweather said. “They also frequently face racial bias during the home buying process.”
Part of the reason many are having difficulties in finding affordable housing is the current mortgage rates, which are through the roof because of the Federal Reserve’s ongoing interest rate hikes meant to fight inflation.
While mortgage rates had dropped under 3% in early 2021, the 30-year fixed rate mortgage took a jump to more than 7% before falling slightly to start this year. In 2021, the average rate was 2.96%, but in 2022, that number was 5.34%.
As inflation remains near its record highs, the rate increases from the central bank are not expected to end anytime soon.
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