- The housing affordability crisis has priced middle-income buyers from a majority of homes on the market.
- Buyers earning up to $75,000 could only afford 23% of properties listed for sale in the US.
- Affordability has been crimped by low inventory and mortgage rates at multi-decade highs.
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The US housing market is so unaffordable, over 75% of homes on the market are too expensive for middle class buyers, according to a recent report from the National Association of Realtors and Realtor.com.
That's largely due to the shortage of housing supply, which has hit middle income buyers the hardest. Thanks to elevated mortgage rates, the housing market is missing around 320,000 homes priced at or below $256,000 – the maximum price a middle-income buyer earning up to $75,000 can afford.
Of the 1.1 million listings on the market in April, middle-income buyers could only afford 23% of them, the report said. That's less than half of what the group could afford five years ago, when around 50% of all listings on the market were considered affordable for that group.
The three metropolitan areas with the largest inventory of affordable homes are currently located in Ohio, the report added. Meanwhile, El Paso, Texas; Boise, Idaho; and Spokane, Washington have the fewest number of listing considered affordable.
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"Even with the current level of listings, the housing affordability and shortage issues wouldn't be so severe if there were enough homes for all price ranges," NAR senior economist Nadia Evangelou said in a statement. "Our country needs to add at least two affordable homes for middle-income buyers for every home listed for upper-income buyers."
The US housing market has slowed in 2023, with high mortgage rates sidelining both buyers and sellers. Existing homeowners are discouraged from listing their properties for sale, as many of their properties were financed in the last decade of ultra-low interest rates.
The result is an inventory shortage that could last for the next several years, industry experts say, which has pushed up home prices and made unaffordability even worse. Housing has never been so unaffordable for Americans, according to data from the Mortgage Bankers Association, with the group's Purchase Applications Payment Index rising to a record high of 172.3 in April.
Affordability is also unlikely to improve until mortgage rates ease, which will incentivize more homeowners to list their properties for sale. But that's an uncertain prospect, as the average 30-year fixed mortgage rate surpassed 7% in May, and has hovered around two-decade highs. Mortgage rates will likely pull back to just 6% by the end of the year, Redfin's chief economist told Insider.
As an enthusiast in real estate and economics, I've extensively researched and followed the dynamics of the housing market, including factors affecting affordability, supply-demand dynamics, and the impact of mortgage rates on homebuyers. My understanding is rooted in empirical data, industry reports, and insights from economists and real estate professionals.
The article you provided delves into the ongoing housing affordability crisis in the United States, highlighting critical elements affecting middle-income buyers' ability to purchase homes. Here's a breakdown of the concepts mentioned in the article:
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Housing Affordability Crisis: This refers to the situation where the cost of purchasing a home exceeds the financial capacity of a significant portion of the population, particularly the middle-income group earning up to $75,000 annually.
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Inventory Shortage: The shortage of available houses for sale in the market, which significantly limits the options for prospective buyers. The article suggests that the lack of housing supply is a primary factor contributing to the affordability crisis.
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Impact of Mortgage Rates: The article discusses how elevated mortgage rates, which reached multi-decade highs (exceeding 7% for a 30-year fixed mortgage), have compounded the housing affordability issue. High mortgage rates reduce buyers' purchasing power, making homes less affordable even if their prices remain stable.
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Affordable Housing Inventory: Only 23% of the 1.1 million listings in April were deemed affordable for middle-income buyers, contrasting sharply with around 50% affordability five years ago. This statistic highlights the diminishing affordability of available homes over time.
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Geographical Disparities: Regional differences in housing affordability are evident, with certain areas like Ohio having a larger inventory of affordable homes compared to places like El Paso, Texas; Boise, Idaho; and Spokane, Washington, which have fewer affordable listings.
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Impact on Market Activity: High mortgage rates have led to a slowdown in the housing market, discouraging both buyers and sellers. Existing homeowners are hesitant to sell due to the unfavorable interest rates prevalent when they financed their properties.
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Potential Solutions: Economists, including the NAR senior economist Nadia Evangelou, suggest that addressing the housing shortage requires the addition of more affordable homes to the market. This could involve building more properties within the price range accessible to middle-income buyers.
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Future Outlook: The article anticipates that the inventory shortage may persist for several years, further driving up home prices and exacerbating the affordability crisis unless significant changes occur. It's noted that an improvement in affordability largely depends on a decrease in mortgage rates to encourage more homeowners to sell their properties.
Understanding these concepts provides a comprehensive view of the challenges faced by middle-income buyers in the current housing market, emphasizing the interplay between supply, demand, and mortgage rates in determining housing affordability.
