“No one can afford to buy a house right now.”
That's how a majority of prospective buyers felt last year, according to a recent analysis from real estate group Redfin.
That was closer to the truth for minority households.
The average black household was able to purchase just 7% of the properties for sale last year on average income, while white households were able to purchase 22% of the properties. This share was almost as bad for Latino households, where only 10% of the homes sold were able to buy. Meanwhile, an Asian household with a median income can buy her 27% of the homes sold.
The overall affordability situation was tough. Just 16% of homes sold in 2023 will be affordable to typical U.S. households, the lowest share ever since Redfin began tracking the metric a decade ago. Overall, the share of affordable properties in the U.S. fell to 352,500 last year, down 41% from 596,135 the year before and down from more than 1 million over the past decade. Limited inventory supported prices, raising the cost of homeownership even in historically affordable areas.
read more: How to buy a home: 13 steps to get the keys to your new home
Despite these hurdles, there are signs that 2024 could be better. Wage growth accelerated for nonwhite households last year, leading to a narrowing of income inequality, Redfin economists said. Rents are also showing signs of falling, potentially allowing renters, many in communities of color, to save toward buying a home.
“Wage inequality is a big part of it,” Redfin chief economist Darryl Fairweather told Yahoo Finance. “Housing prices are very high in many metropolitan areas, which makes it much harder for Black and Latino households to buy a home compared to white households.”
Fairweather added: “Higher mortgage rates mean higher mortgage payments, creating another barrier for people with low incomes to make a down payment.”
read more: Mortgage rates below 7% — is now a good time to buy a home?
“Racial economic disparities exist nationwide.”
Last year, as both prices and interest rates soared, even the nation's most affordable urban areas became less accessible to Black and Latino homebuyers.
In Detroit, where mortgage payments are among the lowest in the country, only 31.8% of properties would be affordable to the typical black household in 2023, and 50.2% to the average Latino household. This is much lower than the 66% of affordable properties for the typical white household.
The average price of a listed home in Detroit was $85,000 in December, up 21.4% from 2022. According to the U.S. Census Bureau, the typical single person in Michigan earned an annual income of $63,380.
And in more expensive markets, where nearly everyone struggled to find affordable housing, Black and Latino households had far fewer options to choose from.
For example, in Anaheim, California, less than 0.5% of properties would be affordable to the typical black and Latino household in 2023, compared to nearly 2% of properties available to the average white household. A Redfin investigation found that.
As of December, the typical listed home price in Anaheim was $866,000, up 12% from a year ago. Meanwhile, as of May 2023, the average Californian earned an annual income of $75,235.
“Racial housing affordability disparities exist across the country, from the most affordable to the least affordable urban areas,” the report states.
According to Redfin, a listing is considered affordable if buyers have to spend 30% or less of their income on payments. But that goal is becoming increasingly difficult to achieve as wages fail to keep up with rising housing costs.
On a national level, the average homebuyer in 2023 will need to earn an annual income of at least $109,868 if they aim to spend less than 30% of their income on the monthly mortgage payment on a median-priced home . This is an 8.5% increase over 2022 and $31,226 more than the average household's annual income.
Wages for non-white households grew at a pace of 5.9% in December 2023, compared to 5.6% for white households, while minorities continue to lag behind. Median household income in 2022 varies by race, according to the latest U.S. Census data.
The median income for the average black household was $52,860, and the median income for Latino households was $62,800. Meanwhile, the median household income for white and Asian households was $81,060 and $108,7000, respectively. Nationally, the median household income in 2022 was $74,580.
“A perfect storm of inflation, high prices, high mortgage rates, and weak housing supply will make 2023 the most affordable year for housing in recent history,” Elijah de la Campa, senior economist at Redfin, wrote in a separate report. It was a year in which I didn't get in.” “The good news is that affordability is already improving heading into the new year.”
Home purchase conditions are expected to improve in 2024
Last year's dramatic decline in affordability was partly due to a decline in the number of listings nationwide, which was down 21% from the previous year. Fewer homeowners decided to put their homes on the market, and higher mortgage rates also supported housing costs, further exacerbating the inventory shortage.
But buyers may be in luck in 2024.
Redfin said rent prices are finally calming down due to the recent building boom and should fall further in 2024. Already, the median asking rent in November 2023 has fallen 2% year-on-year to $1,967, the largest annual decline since February 2020. .
Renters, typically young Americans who are in the prime of their homebuying years, have long cited rising rent prices as a barrier to homeownership as they are unable to save for a down payment. Softer rent prices could create some room for savings.
It's not hard to imagine why it's so difficult to save up for a down payment.
Another study by Realtor.com found that down payments will reach a new peak in the third quarter of 2023, with the average down payment at $30,000, an increase of 15%. This is up from 11.5% in 2020, when the typical down payment was just $17,000.
Higher down payments due to rising interest rates and home prices have become a major barrier for Latino and Black homebuyers. Especially those with below average or no credit scores.
“If you pay in cash or put a large down payment, you can offset some of the increased interest payments, but if you have a small down payment and a low credit score, the impact on your mortgage can be much larger. '' Fairweather said.
The 2024 mortgage rate easing is an easing in mortgage rates, which Redfin predicts will reach 6.6% by the end of the year. Other economists expect it to fall even more sharply, to around 6% or even lower. Improved affordability could unwind some of the lock-in effect in mortgage rates, with some homeowners listing as rates have fallen more than a percentage point from a peak of nearly 8% in October. You may be persuaded to upload it.
As housing supply increases and new construction surges throughout 2024, prices could fall by an average of 1% by the end of the year, according to Redfin.
“Small housing such as condos and townhomes are in direct competition with apartment rental rates. And with asking rents declining for three straight months, there is downward price pressure on more affordable small housing. “I guess so,” Fairweather said. “This should improve affordability for first home buyers looking for a starter home.
“Also, the lower mortgage rates we expect should improve affordability.”
gabriella I'm a personal finance and housing reporter for Yahoo Finance. Follow her on X @__Gabriela Cruz.
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