Despite a significant slowdown in the housing market caused by increasing mortgage rates, the number of homes available for sale has plummeted to half of its 2019 levels. Sadly, not all buyers have been affected equally. A recent report by Realtor.com and the National Association of Realtors has shown that in May, buyers with an annual income of $100,000 could afford a house with a maximum price of around $341,000. However, only 39% of the homes for sale were listed at or below this price point. A balanced market of supply and demand should have made 64% of homes affordable for those earning $100,000 per annum, indicating a lack of around 285,000 listings in the market.
Just five years ago, a similar buyer could have afforded around two-thirds of the available homes for sale, where lower home prices and mortgage rates enabled a more comfortable purchase. The lack of affordable homes has created fierce competition in the market, reversing the cooldown in home prices that started last summer. Market experts have labeled it “almost a tale of two cities,” with houses under $500,000 selling incredibly fast, and homes over $500,000 taking longer to sell due to a lack of affordability.
The scarcity of available homes and ongoing high housing costs are presenting budget challenges for many prospective buyers, likely keeping some in the rental market or delaying their home purchase. As a result, more buyers are turning to new construction, which is ironic since it used to come at a price premium. Various incentives such as upgrades or temporary mortgage rate buydowns are offered by home builders, but these are decreasing as more demand is seen, giving the builders more pricing power.
Location is everything in real estate, and the areas that have the most significant deficit of affordable homes are El Paso, Texas; Boise, Idaho; Spokane, Washington; several Florida markets; and Riverside and Los Angeles, California, which are among the priciest housing markets in the country. The Midwest remains the area with the highest number of affordable homes, with the four cities with the most considerable supply of affordable homes all located in Ohio, followed by Syracuse, New York; Pittsburgh, Pennsylvania; and St. Louis, Missouri.
Unfortunately, the supply situation does not appear to be improving anytime soon. According to a recent Redfin report, new listings for homes for sale in the first week of June this year have fallen by 25% year over year, marking their lowest level for any early June on record. This lack of new listings has also resulted in 5% fewer homes being available on the market in comparison to the same period last year.
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