This year ended on a disappointing note for many American homebuyers. According to Redfin research, less than 16% of homes sold in 2023 will be affordable to local median income earners. This is the lowest interest rate since at least 2013, when Redfin began its affordability study, when 50% of homes were affordable to average local income earners. In 2019, before the pandemic, 40% of listed homes were affordable. In 2022, that percentage was just 21%.
In this study, researchers defined “affordable” as housing costs that are 30 percent or less of income. They assumed a relatively low down payment of 5%, a 30-year fixed-rate mortgage at the current interest rate in the month the home went on the market, and homeowner’s insurance and private mortgage insurance. The study looked at prices and incomes in 97 of the most populous metropolitan areas in the United States.
The U.S. Census Bureau’s American Community Survey was used to analyze income data, and its demographic breakdown revealed deep racial disparities in homebuying. Only 7% of housing was affordable for black households with the median income, compared to 10% for households with the median income. Hispanic/Latino households. However, 22% of the properties were affordable to white households with median income, and 27% were affordable to Asian households with median income.
This is not surprising given rising interest rates and low inventory in 2023. But in some regions, especially the Midwest, far more housing was affordable to everyone. Detroit and the Akron and Dayton metros in Ohio had the highest percentage of affordable housing for average income earners, at about 50 percent. But in wealthy metropolitan areas such as San Francisco, Los Angeles, and Oxnard, Calif., in the West, families can afford less than one in every 300 listed homes.
The good news is that housing affordability is expected to improve in 2024 as mortgage rates fall and more homes enter the market.
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