The current U.S. housing market is a trifecta of doom for buyers. In fact, more than 40% of the 100 largest metro markets in the country are wrestling with a growing affordability crisis. As Danielle Hale, the chief economist at Realtor.com, points out, progress has been made in some regions. The reality on the ground is still very difficult for people, especially those with lower incomes.
As of March 2023, national home prices had skyrocketed 39% relative to March 2019, before the pandemic began in earnest. Data is through the S&P CoreLogic Case-Shiller Index. This record jump highlights just how hard it is for buyers right now. In a hypothetical balanced market, a typical buyer earning from $75,000-$100,000 would be able to afford 48% of all active listings, according to a study using standard underwriting guidelines. Unfortunately, the picture is a stark contrast to this vision.
As Hale noted, cities like Austin, Texas, San Francisco, and Denver have received a big injection of affordable home production. In the meantime, other communities are continuing to get left behind. The report uncovers a disturbing trend. Those cut cities, such as Raleigh, North Carolina, Des Moines, Iowa, Grand Rapids, Michigan, and New York City, now face an undersupply of affordable homes. For homebuyers making less than $75,000 a year, the crisis has worsened as they have fewer choices right now.
The report blames these ongoing struggles in the housing market on a few key factors. Decades of underbuilding over many geographies have created a historic housing shortage. At the same time, soaring construction costs and exclusionary zoning laws increase the scarcity of available buildable land, deepening the crisis. Additionally, a wave of new arrivals to much of the country has made the competition for existing homes even sharper.
Compared to one year ago, shoppers today are finding more homes for sale. Promisingly, the majority of these listings cater to moderate-income price points. Instead, we’ve turned inward,” Hale said. The inventory bump is more pronounced than in previous months across the Midwest and South. Other markets such as Akron, Ohio, St. Louis, and Pittsburgh have achieved equilibrium, due in large part to an adequate supply matching the prevailing demand.
While this represents encouraging progress in some markets, the national demand continues to be incredibly high. The report reveals that the market would require approximately 416,000 additional listings priced at or below $255,000 to achieve balance. Homebuyers making $250,000 and up can afford over 80% of the current listings. This sharply emphasizes the chasm that exists between those of low and high incomes.
For Americans making $50,000 a year, the picture isn’t much better. These buyers would only be able to afford 8.7% of all active listings in March 2023. The gap between high and low income households is stark and indicative of the national challenges the housing sector is facing.
Report’s primary authors reiterated that there was substantial room for improvement. They wrote, “With the appropriate combination of new development, real estate trends, and local government initiatives, even the most intractable markets can begin to curve toward equilibrium.” This is a hopeful statement in that it suggests strategic interventions might go a long way towards easing some of the Squeeze that’s putting pressure on affordability.