Analysis shows that the lack of affordable homes for sale hits minorities the hardest

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“No one can afford a house right now.”

That’s how the vast majority of potential buyers felt last year, according to a recent analysis by the real estate group Redfin.

This was closer to being true for minority families.

The average black household could afford only 7% of the listings for sale last year on a median income, while white households could afford 22% of the listings. The share was equally bad for Latino families, who could afford only 10% of the homes for sale. On the other hand, Asian families can afford 27% of homes for sale at median income.

The affordability picture was generally bleak. Just 16% of homes for sale in 2023 were affordable for the typical American family, the lowest percentage on record since Redfin began tracking the metric a decade ago. Overall, the share of affordable listings 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 previous decade. Homeownership costs have risen even in historically affordable areas due to limited inventory supporting prices.

Read more: How to buy a house: 13 steps to get the keys to your new home

Despite these obstacles, there are signs that 2024 may be better. Economists at Redfin noted that wages for non-white households rose faster Last year, which helped reduce the income gap. It also showed rents Signs of fallingwhich can help renters — often communities of color — save more money for their homes.

“A big part of it is the wage gap,” Darryl Fairweather, chief economist at Redfin, told Yahoo Finance. “Home prices have become unaffordable in a lot of urban areas. This makes it really difficult for black and Latino families to be able to afford a home compared to their white counterparts.”

“The higher the mortgage rate, the higher the mortgage payment. This creates another barrier for people with lower incomes to make a down payment,” Fairweather added.

Read more: Mortgage Rates Below 7% – Is This a Good Time to Buy a Home?

A home in the Gold Coast neighborhood is being listed for nearly $6 million in November 2023 in Chicago. (Image source: Scott Olson, Getty Images) (Scott Olson via Getty Images)

“Racial affordability gap exists nationwide.”

Even affordable urban areas in the United States have become less accessible to black and Latino homebuyers in the past year as prices and rates have risen.

In Detroit, where mortgage payments are among the lowest in the country, just 31.8% of listings were affordable to the typical Black family in 2023, and 50.2% of those were affordable to the average Latino family. This is significantly lower than the 66% affordable listings for the typical white family.

Homes listed in Detroit are priced on average $85,000 In December, an increase of 21.4% over 2022. According to United States Census Bureauthe typical individual earner in Michigan had an annual income of $63,380.

And in more expensive markets, where nearly everyone had difficulty finding affordable housing, Black and Latino households had far fewer options to choose from.

For example, in Anaheim, California, less than 0.5% of listings were affordable for the typical Black and Latino household in 2023, compared with about 2% that were affordable for the average white household, Redfin found.

As of December, the typical home listed in Anaheim was what it cost $866,000, an increase of 12% year-on-year. Meanwhile, the average Californian was gaining $75,235 Annually from May 2023.

“The racial gap in housing affordability exists across the country, from least expensive metros to least expensive metros,” the report said.

According to Redfin, a listing is considered affordable if the buyer has to spend no more than 30% of their income on payment. However, achieving this goal has become more difficult as wages have failed to keep pace with rising housing costs.

Nationally, the average homebuyer in 2023 would have had to have an annual income of at least that $109,868 If they aim to spend less than 30% of their income on monthly mortgage payments for an average-priced home. That’s 8.5% more than in 2022 and $31,226 more than the typical household’s income in a year.

While wages for non-white households rose by an average of 5.9% in December 2023 – compared to 5.6% for white households – minorities continue to lag behind. According to the most recent 2022 U.S. Census data, median household income varied by race.

The average black family earned a median income of $52,860, compared to Latino households, which earned a median income of $62,800. Meanwhile, white and Asian households had median household incomes of $81,060 and $108,7000, respectively. Nationally, the median household income was $74,580 In 2022.

“The perfect storm of inflation, rising prices, rising mortgage rates and falling housing supply has caused 2023 to fall as the least expensive year for housing in modern history,” Elijah de la Campa, chief economist at Redfin, said in a separate report. a report. “The good news is that affordability is actually improving going into the new year.”

Expect better home buying conditions in 2024

Prospective homebuyers attend an open house.  (Credit: Getty Images)

Prospective homebuyers attend an open house. (Credit: Getty Images) (Major General Tayeb via Getty Images)

The significant decline in affordability last year was due in part to a decline in listings, which were down 21% nationally year over year. Higher mortgage rates have also supported housing costs as fewer homeowners decide to list their homes for sale, exacerbating the inventory shortage.

But buyers may have better luck in 2024.

Redfin noted that rental prices have finally begun to calm down due to the construction boom in recent years, and are expected to decline further in 2024. Indeed, the average asking rent has decreased. 2% On an annual basis in November 2023 to $1,967, the largest annual decline since February 2020.

Renters, who are typically younger Americans at prime home-buying ages, have a long time coming Quote Inability to save for a down payment due to high rental prices as a barrier to homeownership. Lower rental prices could give them wiggle room to save.

It’s not hard to imagine why down payments are so difficult to come by.

According to a separate study conducted by Realtor.comDown payments reached a new peak in Q3 2023 with an average 15% down payment of $30,000. That’s up from 11.5% in 2020, when the typical down payment was just $17,000.

This rise in down payments, a result of rising interest rates and home prices, has been a major barrier for Latino and Black homebuyers. Especially those with a below average credit score or no credit score.

“If you’re paying cash or making a big down payment, you can offset some of that increase in interest payments, but when you have a low down payment and if you have a low credit score, the mortgage impact can be really high,” Fairweather said.

More affordability assistance in 2024 would lead to an easing in mortgage rates, which Redfin expects to reach 6.6% By the end of the year. Other economists expect a deeper decline to around 6% or even lower. Improving affordability could dissolve some of the impact of mortgage rate stabilization, convincing some homeowners to list homes now that rates have fallen more than a full point from their peak of 8% in October.

According to Redfin, the increase in housing supply throughout 2024 and a rush of new construction could cause prices to fall 1% on average by the end of the year.

“Tiny homes, like apartments and townhomes, are in direct competition with apartment rents,” Fairweather said. “And since asking rents have fallen for three months in a row, that will put downward pressure on affordable tiny homes.” “This would improve affordability for first-time homebuyers looking for new homes.

“The decline in mortgage rates we expect will also improve affordability.”

Gabriella He is the personal finance and housing correspondent for Yahoo Finance. Follow her on X @__GabrielaCruz.

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