Vast majority of U.S. homes are unaffordable to the average buyer
The cost of buying a home is drifting further out of financial reach for the average American, according to a report from Redfin.
The real estate website analyzed homes that went on sale last year and found that only 21% of them were affordable, meaning that nearly 80% of homes were outside the typical buyer's budget. By comparison, about 60% of homes were considered affordable in 2021, the report released Friday found.
Redfin Deputy Chief Economist Taylor Marr said those stats boil down to one truth: housing affordability is at its lowest point in history.
"Many millennials were able to buy their first home before or during the pandemic homebuying boom, but many others were priced out of homeownership and forced to keep renting," he said in the report. "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."
Redfin defined an "affordable" home as one whose mortgage payment would equal 30% or less of the average monthly income of residents in the county where the home sits. Redfin found that the highest percentage of affordable homes were in Akron, Cleveland and Dayton in Ohio, Pittsburgh and St. Louis, Missouri. Five California cities — Anaheim, Los Angeles, Oxnard, San Diego and San Francisco — had the lowest percentage of affordable homes.
The Redfin report dovetails with a recent Bloomberg analysis that shows Americans will need a higher income to land their first home. First-time buyers in 2022 had a typical household income of as much as $90,000 compared to just $70,000 in 2019, Bloomberg reported Friday.
The housing market is expected to pick up steam in the coming weeks as the historically hectic spring buying season kicks into gear. House hunters today face mortgage rates of around 6.6%, up from 3.75% a year ago. The median home price hit $415,000 last month, up from $406,000 in January, according to National Association of Realtors data.
Why are prices rising?
Home prices are climbing for a couple of reasons, Redfin said. The Federal Reserve's monthslong battle with soaring inflation has helped push mortgage rates skyward, thus increasing borrowing costs for buyers. Also, demand for homes soared in 2022 and builders couldn't keep up with the pace, driving prices for existing homes even higher.
The next few months will be tough sledding for buyers and sellers alike. Many homeowners are leery of selling because they might have to buy another house at a much higher mortgage rate, while buyers are still seeing far elevated prices, Daryl Fairweather, chief economist at Redfin, told CBS News on Thursday.
"The one silver lining is that if you manage to be able to afford a home, if you can get that mortgage, you're going to face a lot less competition," Fairweather said.