Housing Affordability at Historic Low

Only 21% of U.S. households could afford the homes listed for sale in 2022, the lowest home affordability gauge on record, according to Redfin.

The real estate brokerage analyzed home prices in the nation’s 100 most populated metropolitan areas to rate a home as affordable if its average monthly payment was no more than 30% of the local median income.

Home affordability has taken a tremendous drop in the U.S. in the past year. In 2021, 40% of U.S. homes for sale were affordable for the average American.

“Housing affordability is at the lowest level in history, which is widening the wealth gap — especially between generations,” says Redfin Deputy Chief Economist Taylor Marr.

Owning a home has become unattainable for the majority of Americans because the pandemic housing boom caused home prices to surge, while incomes did not keep up with the boom market, Redfin says.

Today, homes cost 32% more than before the pandemic started in 2020, even after cooling by 12% since their May peak.

However, the bigger factor keeping home ownership out of reach for many is rising mortgages. The average 30-year mortgage is 6.65%, more than double 2.96% in 2021 and up from 5.34% in 2022.

Further boosting home prices is the fact that there more people in the market for a home than there are listings.

Another factor making home ownership unattainable for the majority of Americans: The median annual real estate tax Americans now pay is $2,971. With a median home value of $268,800 in the United States, that makes the effective property tax rate 1.11%, according to The Motley Fool.

“Many Millennials were able to buy their first home before or during the pandemic home-buying boom, but many others were priced out of homeownership and forced to keep renting,” Marr says.

“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 adds.

First-time homebuyers who do not have home equity built up and those who earn less than the average salary of $53,490 in the U.S., according to the Bureau of Labor Statistics, are feeling the sting of being priced out of the market the most, KPMG economist Yelena Maleyev tells The Hill.

However, those who dream of owning a home can take solace in the fact that, eventually, mortgage rates will decelerate, Marr says. In addition, the slowing economy and higher mortgage rates are forcing home prices to come down, albeit only slightly, the economist adds.

“Incomes are also growing faster than the historical norm,” Marr adds.

Redfin began its home affordability gauge in 2013.