Redfin Reports Only 16% of Home Listings Were Affordable for the Typical Household in 2023

Rhea-AI Summary

Redfin (NASDAQ: RDFN) reports that housing affordability is expected to improve in 2024 as mortgage rates fall and more homes go up for sale. The share of affordable homes for sale in 2023 dropped to 15.5%, down from 20.7% in 2022 and over 40% before the pandemic. The number of affordable listings fell to 352,500 in 2023, down 40.9% from 2022. Mortgage rates have fallen from their October peak but remain higher than in 2022. Housing affordability was three times worse for Black households than White households in 2023, and affordable markets became much less affordable in 2023.

Positive

• Mortgage rates expected to fall in 2024
• Home affordability expected to improve in 2024
• Wages have grown faster for nonwhite households
• Rents have started to fall, impacting communities of color

Negative

• Affordable listings fell 40.9% from 2022 to 2023
• Mortgage rates remain higher than in 2022
• Housing affordability was three times worse for Black households
• Affordable markets became much less affordable in 2023

Insights

Economist

The recent report from Redfin highlights a significant shift in the housing market, with affordability reaching record lows in 2023. This trend is attributed to a confluence of factors, including elevated mortgage rates and high home prices, which have been exacerbated by a general decline in listings. However, the forecast for 2024 suggests an uptick in affordability as mortgage rates decline and more homes are expected to be listed post-holidays.

This development has critical implications for the economy as housing affordability directly affects consumer spending and mobility. The potential increase in home purchases could stimulate related industries, such as construction and home improvement and have a ripple effect on the broader economy. However, the long-term impact remains uncertain, as affordability is also tied to broader economic conditions, including employment rates and wage growth.

It is important to highlight the disparity in affordability among different racial groups, with Black and Hispanic/Latino households facing greater challenges. This discrepancy not only reflects current economic conditions but also underscores systemic issues such as income inequality and discrimination. Any improvement in affordability could help address these disparities, though the extent to which this will occur remains to be seen.

Financial Analyst

The data presented by Redfin could influence investor sentiment regarding the real estate market and related sectors. The decline in affordable listings could be a concern for real estate companies and investors, as it suggests a potential narrowing of the market base. However, the projected improvement in 2024 could signal a rebound, making real estate stocks potentially more attractive.

From a financial perspective, the increased housing affordability could lead to higher demand and sales volume, benefiting companies within the housing supply chain. Mortgage lenders might see an uptick in loan originations, while homebuilders could experience increased demand for new constructions. Conversely, this could also result in downward pressure on home prices, which may affect the profitability of real estate investments.

Investors will need to monitor the interplay between mortgage rates, home prices and consumer confidence. The anticipated increase in affordability could drive growth in the sector, but this is contingent upon sustained economic stability and the absence of adverse macroeconomic events.

Social Economist

The report underscores a critical social issue: housing inequality. The disparity in home affordability across racial groups highlights systemic economic disadvantages that disproportionately affect Black and Hispanic/Latino households. The potential improvement in affordability could ameliorate these inequalities to some extent, but it does not address the root causes such as wage disparity and discrimination.

Moreover, the impact on different metropolitan areas varies, with traditionally more affordable markets experiencing a rapid decline in affordability. This suggests a widening gap between income growth and housing costs in these areas. It is essential to consider the long-term social implications of these trends, as they could influence migration patterns, urban development and economic opportunities for marginalized communities.

It is noteworthy that wage growth has been faster for nonwhite households, which may contribute to narrowing the income gap. Additionally, the decrease in rents could provide some relief for communities of color who are more likely to rent. However, the extent to which these factors will contribute to closing the affordability gap remains to be seen.

Housing affordability is expected to improve in 2024 as mortgage rates fall and more homes go up for sale

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) —Just 15.5% of homes for sale in 2023 were affordable for the typical U.S. household—the lowest share on record, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s down from 20.7% in 2022 and more than 40% before the pandemic homebuying boom.

The number of affordable homes for sale also dropped to the lowest level on record. There were 352,500 affordable listings in 2023, down 40.9% from 596,135 in 2022 and down from over a million per year during the prior decade. While the decline is partly due to a drop in listings in general—listings overall fell 21.2% year over year—it’s also due to the fact that elevated mortgage rates and stubbornly high prices made the listings hitting the market more expensive.

Mortgage rates have fallen from their October peak, but remain higher than they were in 2022; the typical homebuyer’s monthly payment is roughly $250 more than it was a year ago. Elevated mortgage rates have also propped up housing costs by limiting supply. Many homeowners are staying put instead of selling because they don’t want to lose their ultra low interest rate. That’s bolstering home prices because it means buyers are competing for a limited pool of homes.

The good news is that housing affordability has already started to improve, and Redfin expects it to continue improving in 2024.

“Many of the factors that made 2023 the least affordable year for homebuying on record are easing,” said Redfin Senior Economist Elijah de la Campa. “Mortgage rates are under 7% for the first time in months, home price growth is slowing as lower rates prompt more people to list their homes, and overall inflation continues to cool. We’ll likely see a jump in home purchases in the new year as buyers take advantage of lower mortgage rates and more listings after the holidays.”

Housing Affordability Was Three Times Worse for Black Households Than for White Households

Only 6.9% of homes for sale in 2023 were affordable for the typical Black household, compared with 21.6% for the typical white household. The share was nearly as low for Hispanic/Latino households (10.4%) and was highest for Asian households (27.4%).

Housing has become unaffordable for a lot of Americans, but Black and Hispanic/Latino families have been hit especially hard because they’re often less wealthy to begin with. On average, these groups earn less money, have less generational wealth, and have lower credit scores (and sometimes no credit scores at all) than white Americans due to decades of discrimination. That makes it tougher to afford a down payment and qualify for a low mortgage rate. Black Americans, in particular, also frequently face racial bias during the homebuying process.

The racial housing affordability gap exists nationwide, from the least affordable metros to the most affordable metros. In Detroit, which has the lowest mortgage payments in the country, 31.8% of listings were affordable for the typical Black household this year and 50.2% were affordable for the typical Hispanic/Latino household, but that’s much lower than the 66% affordable for the typical white household. In Anaheim, CA, one of the most expensive markets in the country, people across the board have a hard time finding affordable housing. Still, Black and Hispanic/Latino house hunters have fewer options. Less than 0.5% of listings were affordable for the typical Black household and the typical Hispanic/Latino household in 2023, compared with 1.8% for the typical white household.

It’s worth noting that wages have grown faster for nonwhite households than for white households this year, helping to shrink the income gap. Rents have also started to fall, which disproportionately impacts communities of color because they’re more likely to be renters.

Affordable Markets Became Much Less Affordable in 2023

In Kansas City, MO, 27.9% of homes for sale in 2023 were affordable for the typical local household, down from 42.8% in 2022. That 14.8 percentage point decline is the largest among the metros Redfin analyzed. Next came Greenville, SC (-14.1 ppts), Worcester, MA (-13.7 ppts), Cincinnati (-13.7 ppts) and Little Rock, AR (-13.5 ppts).

Relatively inexpensive metros have seen affordability erode quickly because housing costs have relatively more room to rise, and local incomes are often climbing at a fraction of the pace that mortgage payments are.

In San Francisco, 0.3% of homes for sale in 2023 were affordable for the typical local household, down from 0.4% in 2022. That’s the smallest decline among the metros Redfin analyzed. Next came Detroit (-0.2 ppts), Los Angeles (-0.2 ppts) Boise, ID (-0.3 ppts) and Oakland, CA (-0.5 ppts).

Markets that have long been expensive like San Francisco, Oakland and Los Angeles already had so few affordable homes that the share didn’t have much room to fall. In the five aforementioned metros aside from Detroit, less than 5% of listings were affordable for the typical household in 2023.

To view the full report including charts, methodology and metro-level breakouts, please visit:

https://www.redfin.com/news/share-of-homes-affordable-2023

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We also run the country's #1 real estate brokerage site. Our home-buying customers see homes first with same day tours, and our lending and title services help them close quickly. Customers selling a home in certain markets can have our renovations crew fix up their home to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Customers who buy and sell with Redfin pay a 1% listing fee, subject to minimums, less than half of what brokerages commonly charge. Since launching in 2006, we've saved customers more than $1.5 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20231221687321/en/

Contact Redfin

Redfin Journalist Services:

Kenneth Applewhaite, 206-414-8880

press@redfin.com

Source: Redfin

FAQ

What is the housing affordability outlook for 2024 for Redfin (RDFN)?

Redfin reports that housing affordability is expected to improve in 2024 as mortgage rates fall and more homes go up for sale.

How much did the number of affordable listings fall in 2023 for Redfin (RDFN)?

The number of affordable listings fell to 352,500 in 2023, down 40.9% from 2022.

How much did mortgage rates fall from their October peak for Redfin (RDFN)?

Mortgage rates have fallen from their October peak but remain higher than in 2022.

How much worse was housing affordability for Black households compared to White households in 2023 for Redfin (RDFN)?

Housing affordability was three times worse for Black households than White households in 2023.

Which markets became much less affordable in 2023 for Redfin (RDFN)?

Affordable markets became much less affordable in 2023 in Kansas City, MO, Greenville, SC, Worcester, MA, Cincinnati, Little Rock, AR, San Francisco, Los Angeles, Boise, ID, and Oakland, CA.