Buying a home is becoming nearly impossible for most Americans, according to a recent report from Redfin. The technology-powered real estate company analyzed homes listed for sale last year in the 100 most populous U.S. metropolitan areas. Only 21% of the houses put up for sale in 2022 were above the average buyer’s budget, meaning 79% were unaffordable. In 2021, only about 40% of homes were considered unaffordable, the report found. The Redfin study defines an “affordable” home as one where the mortgage payment would be 30% of the average monthly income or less in the county where the home is located.
Redfin Found That Five Cities in California Had the Lowest Percentage of Affordable Houses.
Anaheim, Los Angeles, Oxnard, San Diego, San Francisco
The Cities With the Highest Percentage of Affordable Homes
St. Louis, Missouri
Affordable Listings Declining
With affordable listings declining drastically within the past year, Americans are in the midst of a housing affordability crisis. Redfin Deputy Chief Economist Taylor Marr said affordable housing is at its historical bottom, which will widen the wealth gap, particularly among millennials. “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,” Marr stated in the report. “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.”
More Income Needed to Buy a Home
The Redfin study coincides with a recent Bloomberg report, which concluded that American homebuyers need a higher income to buy their first home. In 2022, the typical household income for first-time homebuyers jumped to $90,000 compared to $70,000 in 2019, according to the Bloomberg analysis.
First-time buyers Took up the Smallest Share of Sales
The Bloomberg report also found that first-time buyers took up the smallest share of sales at 26% last year. “We’re far from affordability for the masses,” according to Zillow senior economist Nicole Bachaud. “The scales are shifted toward homebuyers with higher incomes and a better financial background. This will be the norm until we get more inventory in the market.”
Why Is the Average American Being Priced Out of Buying a Home?
The Redfin report cites three reasons for the home affordability crisis: Mortgage rates are soaring as The Federal Reserve fights inflation. The pandemic homebuying boom sent home prices higher, rising faster than incomes. There aren’t enough homes for sale, propping up prices.
Are Interest Rates to Blame?
Low supply and rising interest rates mean home ownership is likely out of reach for the average American in the near term. To combat housing affordability issues, the Biden administration announced a lowering of mortgage insurance premiums for new borrowers who take out loans insured by the Federal Housing Administration (FHA). The move lowers the annual premium from 0.85% to 0.55%. An estimated 850,000 home buyers will save an average of $800 on home financing costs this year. The change will take effect on March 20 to increase home ownership.
Is Renting Better Than Buying Right Now?
If most homes are unaffordable, does renting make more financial sense than purchasing one right now? According to researchers at Florida Atlantic University and Florida International University, the answer is yes. In a recently released study, researchers looked at price-to-rent ratios for January. They concluded that homes are overpriced in 97 out of 99 housing markets.
Hold Off Buying Until Home Price Declines Level Off
“Home prices are down, but they are still too high and near record levels, so we expect further price corrections in the future,” said Ken H. Johnson, Ph.D., a co-author of the report and an economist in FAU’s College of Business. “While rents also are on the rise, consumers are better off financially in most areas if they hold off buying until home price declines level off.”
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Jerry is a personal finance enthusiast, side hustler, and freelance web developer who began his career in financial services. He co-founded KindaFrugal.com, a personal finance and frugal living blog. His insights have appeared on MSN, Newsweek.com, HerCampus.com, Mashed.com, and many others.