“Nobody can afford a home right now.”
That’s how the vast majority of would-be buyers felt last year, according to a recent analysis by real estate group Redfin.
That was closer to being true for minority households.
The average Black household could afford just 7% of listings for sale last year on a median income, while white households could afford 22% of listings. The share was nearly as bad for Latino households, which could afford just 10% of homes for sale. Meanwhile, Asian households could afford 27% of homes for sale at the median income.
The affordability picture was bleak overall. Just 16% of homes for sale in 2023 were affordable to the typical US household, the lowest share on record since Redfin started tracking the metric a decade ago. Overall, the share of affordable listings in the US dropped to 352,500 last year, down 41% from 596,135 a year earlier and down from over 1 million during the prior decade. The costs of homeownership rose even in historically affordable areas due to limited inventory propping up prices.
Read more: How to buy a house: 13 steps to getting the keys to your new home
Despite these hurdles, there are signs 2024 could be better. Redfin economists noted that wages for non-white households grew faster last year, helping reduce the income gap. Rents have also shown signs of falling, which could help renters — often communities of color — save more toward their homebuying nest egg.
“The wage gap is a big part of it,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. “Home prices have become so expensive in a lot of metro areas. It makes it really hard for Black and Latino households to be able to afford a home compared to their white counterparts.”
Fairweather added: “The higher the mortgage rate, the higher a mortgage payment will be. It creates another barrier for people with less income to put towards a down payment.”
Read more: Mortgage rates below 7% — is this a good time to buy a house?
‘The racial affordability gap exists nationwide’
Even the most affordable metropolitan areas in the US became less accessible to Black and Latino homebuyers last year as both prices and rates soared.
In Detroit, where mortgage payments are among the lowest in the country, just 31.8% of listings were affordable for the typical Black household in 2023, and 50.2% were affordable for the average Latino household. That’s much lower than the 66% affordable listings for the typical white household.
Homes listed in Detroit were priced at an average $85,000 in December, up 21.4% from 2022. According to the US Census Bureau, the typical single earner in Michigan made an annual income of $63,380.
And in more expensive markets, where nearly everyone had a hard time finding affordable housing, Black and Latino households had far less options to pick from.
For instance, in Anaheim, Calif., less than 0.5% of listings were affordable to the typical Black and Latino households in 2023, compared with nearly 2% that were affordable for the average white household, Redfin found.
As of December, the typical home listed in Anaheim cost $866,000, up 12% year over year. Meanwhile, the average Californian earned $75,235 annually as of May 2023.
“The racial housing affordability gap exists nationwide, from the least affordable metros to the most affordable metros,” the report said.
According to Redfin, a listing is considered affordable if a buyer would have to spend no more than 30% of their income on the payment. However, that goal has become harder to achieve as wages have failed to keep up with rising housing costs.
At a national level, an average homebuyer in 2023 had to earn an annual income of at least $109,868 if they were aiming to spend under 30% of their income on a monthly mortgage payment for a median-priced home. That was 8.5% more than 2022 and $31,226 more than the typical household earned in a year.
While wages for non-white households grew at a pace of 5.9% in December 2023 — compared to 5.6% for white households — minorities still lag behind. Per the latest US Census data, in 2022, the median household income varied by race.
The average Black household earned a median income of $52,860, compared to Latino households, which earned an average of $62,800. Meanwhile, white and Asian households made a median household income of $81,060 and $108,7000, respectively. On a national scale, the median household income was $74,580 in 2022.
“A perfect storm of inflation, high prices, soaring mortgage rate and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” Redfin senior economist Elijah de la Campa said in a separate report. “The good news is that affordability is already improving heading into the new year.”
Expect better homebuying conditions in 2024
Last year’s dramatic decline in affordability was in part due to a drop in listings, which fell 21% on a national scale year over year. Elevated mortgage rates also propped up housing costs as fewer homeowners decided to list their homes for sale — aggravating the inventory shortage.
But buyers could have better luck in 2024.
Rent prices are finally cooling down due to the building boom in recent years, Redfin noted, and should reduce further in 2024. Already, the median asking rent fell 2% year over year in November 2023 to $1,967, the largest annual drop since February 2020.
Renters, typically younger Americans in prime ages for homebuying, have long cited an inability to save for a down payment due to rising rent prices as a barrier to homeownership. The softening of rent prices could give them some wiggle room to save.
It’s not hard to imagine why down payments have been so hard to save up for.
According to a separate study by Realtor.com, down payments hit a new peak in the third quarter of 2023 with an average 15% down payment amount of $30,000. That’s up from 11.5% in 2020, when the typical down payment was just $17,000.
That uptick in down payments, a result of higher rates and home prices, was a major barrier for both Latino and Black homebuyers. Particularly those with below-average or no credit score.
“If you’re paying in cash or putting a large 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 lower credit score, the mortgage impact can be really high,” Fairweather said.
Further aiding affordability in 2024 would be softening mortgage rates, which Redfin predicts will land on 6.6% by the year-end. Other economists expect a bigger drop to around 6% or even under. The improved affordability could thaw some of the mortgage rate lock-in effect, convincing some homeowners to list now that rates are down over a full point from their near 8% peak in October.
According to Redfin, the increase in housing supply throughout 2024 and a burst of new construction could cause prices to drop by 1% on average by year-end.
“Small homes, like condos and townhomes, are in direct competition with apartment rentals. And since asking rents have been declining for three months in a row, that will put downward price pressure on more affordable, smaller homes,” Fairweather said. “This should improve affordability for first-time home buyers seeking starter homes.
“Also, the drop in mortgage rates we are forecasting should improve affordability.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
