Affordable U.S. Homes for Sale Doubled in 2021 Compared to 2022

National real estate brokerage firm Redfin has released new data indicating a significant decline in the availability of affordable homes for sale across the United States in 2022. According to their findings, only about one in five (21%) of the homes listed for sale last year were deemed affordable for the average household.

This marks a stark decrease from the previous year, where two in five (40%) homes were considered affordable, representing the lowest share recorded to date.

Redfin defines a listing as “affordable” if the estimated monthly mortgage payment does not exceed 30% of the median income in the local county. Their analysis reveals a notable shift in the housing market landscape, with affordability becoming increasingly scarce for prospective buyers.

In 2022, the number of affordable listings experienced a staggering 53% decline compared to the previous year, marking the most significant annual drop in Redfin’s records, which span back to 2013.

While part of this decrease can be attributed to a general decline in overall listings—new listings fell by 10% year-over-year—the primary factor driving the decline in affordability was the rise in mortgage rates. Higher interest rates rendered a significant portion of the listings less attainable for buyers, exacerbating the affordability crisis in the housing market.

The housing affordability crisis in the United States has reached unprecedented levels, driven by several key factors:

1. Surge in Mortgage Rates: Mortgage rates have skyrocketed, more than doubling from the record low of 2.65% in 2021 to the current average of 6.65%. This surge has significantly increased monthly mortgage payments, with the average payment on a median-priced home rising by over $500 compared to the previous year.
2. Pandemic Home Price Surge: During the pandemic, home prices surged, outpacing income growth. While prices have since declined by 12% from their peak in May, they remain substantially higher than pre-pandemic levels, contributing to the affordability crisis.
3. Limited Housing Supply: The housing market faces a shortage of available homes for sale, which has kept prices inflated. In January, there were fewer new listings than in any other month on record, except for April 2020 when the pandemic initially disrupted the market.

Redfin’s Deputy Chief Economist, Taylor Marr, emphasized the severe impact of the affordability crisis, particularly on millennials. While some were able to enter the housing market before or during the pandemic, many others were priced out, missing out on significant wealth-building opportunities.

However, there are potential signs of relief on the horizon. As Marr noted, mortgage rates are expected to decrease as the Federal Reserve addresses inflation concerns, while home prices have already begun to fall.

Additionally, income growth is outpacing historical norms, offering hope for improved affordability in the future.

In response to the affordability challenge, the Biden Administration announced a reduction in mortgage insurance rates for FHA-backed loans, aimed at providing relief to low-income and first-time buyers.

Furthermore, states like California and Oregon have implemented legislation to increase the construction of starter homes, which could help alleviate supply constraints in the long term.

Despite these efforts, significant racial disparities persist in housing affordability. Only 9% of homes for sale in 2022 were deemed affordable for the typical Black household, compared to 28% for white households.

The affordability gap has widened, with Black households experiencing a sharper decline in affordability compared to white households.

The housing affordability crisis is not limited to specific regions. Even traditionally affordable areas like Detroit and Akron saw declines in the number of affordable homes for sale. However, the steepest declines occurred in booming metropolitan areas like Boise, San Diego, and Austin, where remote workers flocked during the pandemic in search of affordability and space.