-The escalating housing affordability crisis is now excluding the majority of middle-income buyers from the market.
-Buyers with an income up to $75,000 can only afford a mere 23% of the homes listed for sale across the US.
-This affordability squeeze is exacerbated by a shortage of housing inventory and historically high mortgage rates.
The US housing market has reached a tipping point where over three-quarters of homes listed for sale are now priced beyond the means of middle-class buyers, according to recent findings from the National Association of Realtors and Realtor.com.
What’s the root cause of housing price inflation?
The root cause of this predicament is a severe lack of housing supply which is impacting middle-income buyers particularly hard. With mortgage rates at peak levels, the market is missing approximately 320,000 homes valued at or below $256,000 — the highest price point that a buyer with an income of up to $75,000 can afford.
Out of the 1.1 million homes listed for sale in April, the report indicated that only 23% were within the financial reach of middle-income buyers. This is a significant reduction from five years ago, when around half of all listed properties were considered affordable for this group.
Currently, Ohio tops the list with the highest number of affordable homes, the report noted. In contrast, El Paso, Texas; Boise, Idaho; and Spokane, Washington have the smallest number of listings considered affordable.
Nadia Evangelou, a senior economist at NAR, stated, “The severity of the housing affordability and shortage issues would be greatly reduced if there were a sufficient number of homes for every price range. To meet these urgent housing demands, the US needs to add at least two affordable homes for these middle-income buyers for every single home listed for upper-income buyers.”
Signs of a Slowdown
In 2023, the US housing market has shown signs of stagnation, with soaring mortgage rates dissuading both potential buyers and sellers. Many existing homeowners, who financed their properties during the past decade of exceptionally low interest rates, are now hesitant to list their homes for sale.
Industry experts predict that this inventory shortage could persist for several more years, further inflating home prices and exacerbating the affordability crisis. According to the Mortgage Bankers Association, housing affordability in America has reached an all-time low, with their Purchase Applications Payment Index hitting a record high of 172.3 in April.
How will we solve the affordability crisis?
Any significant improvement in affordability will only come when mortgage rates start to decrease, encouraging more homeowners to list their properties for sale. However, this is uncertain, as the average 30-year fixed mortgage rate surpassed 7% in May and remains near a twenty-year high. Predictions from Redfin’s chief economist suggest mortgage rates may fall to around 6% by year’s end.