As the Number of Homes For Sale Increases, Fewer Homes are Affordable to Middle Class Buyers

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As the Number of Homes For Sale Increases, Fewer Homes are Affordable to Middle Class Buyers

Although the number of homes for sale is increasing rapidly in some markets, the number of affordable homes for sale is falling.

We have written a lot recently about rapid growth in the supply of homes for sale in many markets such as San Jose and Seattle. But with both home prices and interest rates up from a year ago, both the number and share of homes for sale that are affordable to a typical household has actually decreased even as total homes for sale are increasing.

For this report we considered all homes that were active on the market at any point in 2018 and 2017. We calculated the share of homes in each metro area that were affordable during each year to a household making the median income in that metro area, assuming a 20 percent down payment, an interest rate of 4.64 percent for 2018 and 3.95 percent for 2017, and a monthly mortgage payment no more than 30 percent of gross income.

Just 14 percent of homes that were on the market in 2018 in the San Jose metro area were affordable on the median household income in the area of $117,000. This is a big drop from 2017, when 26 percent of homes that were for sale were affordable. In Los Angeles, 16 percent of homes for sale were affordable in 2018, down from 20 percent in 2017. In Seattle the share of affordable homes for sale dropped from 58 percent in 2017 to 46 percent in 2018.

Metro areas with the largest decrease in share of homes for sale affordable on a median income

Home price gains and interest rate increases through 2018 combined to considerably reduce home affordability, so even though the number of homes for sale is increasing the number of affordable homes on the market has decreased in most metro areas.

“Homeownership is increasingly out of reach for the typical American,” said Redfin chief economist Daryl Fairweather. “Over the last few years builders have focused on luxury homes, and there hasn’t been enough construction of affordable starter homes.”

In many metro areas, even as the number of homes for sale has increased, the number of affordable homes for sale has shrunk over the past year. In the San Diego area, there were 10 percent more homes for sale during 2018 than 2017, but the number of affordable homes for sale fell 16 percent. In the Seattle metro, there were 4 percent more homes for sale, but the number of affordable homes for sale fell 17 percent.

Although the share of homes for sale that were affordable on a median income fell from 2017 to 2018 in all 49 of the metro areas we analyzed, there were a few metro areas where the number of affordable homes for sale increased, including Hartford, CT (+19%), Jacksonville, FL (+9%) and Nashville, TN (+4%).

Homebuyers looking for affordable options still have plenty of choices in metro areas like St. Louis (84%), Minneapolis (82%) and Pittsburgh (82%). Strong growth in jobs and wages may also help buyers make up some lost ground as well.

“We expect builders to shift their attention to more affordable homes during 2019,” added Fairweather, “which along with rezoning efforts by local governments should reduce this pressure to some degree over time.”

Table: Number and Share of Affordable Homes for Sale, 2017 and 2018 by Metro Area
Metro Area Number of homes for sale affordable on a median income (2017) Share of homes for sale affordable on a median income (2017) Number of homes for sale affordable on a median income (2018) Share of homes for sale affordable on a median income (2018) Year-over-year change in # of affordable homes for sale from 2017 to 2018 Year-over-year change in total # of homes for sale from 2017 to 2018
San Jose, CA 5,804 26% 2,616 14% -54.9% -15.6%
Seattle, WA 43,837 58% 36,476 46% -16.8% 4.1%
San Francisco, CA 16,731 31% 13,954 26% -16.6% 1.0%
Los Angeles, CA 27,257 20% 22,935 16% -15.9% 4.5%
San Diego, CA 17,833 28% 15,036 22% -15.7% 9.9%
Washington, DC 170,127 74% 149,208 71% -12.3% -8.3%
Sacramento, CA 22,667 54% 19,932 46% -12.1% 3.7%
Philadelphia, PA 160,098 79% 142,338 77% -11.1% -8.9%
Riverside, CA 38,988 51% 34,721 44% -10.9% 4.0%
Portland, OR 30,832 60% 27,867 52% -9.6% 3.9%
Baltimore, MD 81,974 80% 74,268 76% -9.4% -4.8%
Salt Lake City, UT 19,161 77% 17,582 71% -8.2% -0.3%
Milwaukee, WI 19,848 80% 18,236 74% -8.1% -0.5%
Memphis, TN 13,989 80% 12,880 76% -7.9% -2.6%
New York, NY 127,773 50% 118,318 45% -7.4% 3.2%
Denver, CO 43,948 65% 40,931 60% -6.9% 1.4%
St. Louis, MO 47,377 87% 44,262 84% -6.6% -3.4%
Oklahoma City, OK 24,843 84% 23,272 80% -6.3% -1.9%
Boston, MA 41,823 59% 39,295 55% -6.0% 0.5%
Raleigh, NC 25,786 83% 24,242 78% -6.0% 0.2%
Phoenix, AZ 80,681 73% 76,043 69% -5.7% -0.2%
Birmingham, AL 15,335 76% 14,506 71% -5.4% 0.6%
Pittsburgh, PA 28,304 84% 26,855 82% -5.1% -2.7%
Charlotte, NC 39,700 75% 37,829 70% -4.7% 1.9%
Louisville, KY 16,828 81% 16,071 77% -4.5% 0.6%
Cincinnati, OH 28,822 85% 27,543 81% -4.4% -0.1%
Tampa, FL 53,983 73% 51,817 67% -4.0% 4.9%
Orlando, FL 38,875 72% 37,521 67% -3.5% 3.9%
Las Vegas, NV 34,906 72% 33,697 63% -3.5% 9.7%
Cleveland, OH 28,833 85% 27,950 81% -3.1% 1.3%
Richmond, VA 20,788 80% 20,224 78% -2.7% -1.0%
Miami, FL 77,545 51% 75,531 48% -2.6% 3.4%
Columbus, OH 28,752 85% 28,026 83% -2.5% 0.0%
Atlanta, GA 166,051 75% 162,068 71% -2.4% 3.6%
San Antonio, TX 35,864 77% 35,104 72% -2.1% 4.7%
Detroit, MI 128,879 79% 126,205 75% -2.1% 3.3%
Minneapolis, MN 64,772 84% 63,474 82% -2.0% 0.5%
Virginia Beach, VA 27,110 81% 26,568 77% -2.0% 2.3%
Houston, TX 100,905 75% 99,284 72% -1.6% 2.4%
Dallas, TX 97,577 76% 96,037 72% -1.6% 4.0%
New Orleans, LA 12,603 66% 12,439 62% -1.3% 5.4%
Austin, TX 32,778 75% 32,484 72% -0.9% 2.3%
Kansas City, MO 35,206 84% 35,267 80% 0.2% 5.2%
Indianapolis, IN 32,783 85% 33,053 82% 0.8% 4.3%
Providence, RI 17,985 70% 18,219 66% 1.3% 8.8%
Chicago, IL 135,695 72% 139,374 69% 2.7% 6.8%
Nashville, TN 37,430 65% 38,857 62% 3.8% 7.7%
Jacksonville, FL 27,106 76% 29,413 72% 8.5% 15.3%
Hartford, CT 14,290 89% 16,973 83% 18.8% 28.0%

Methodology

Using MSA-level income data from the US Census Bureau and 30-year fixed rate mortgage data for December 2018 (4.64%) and December 2017 (3.95%) from Freddie Mac, we calculated a maximum affordable mortgage payment for each metro area in December 2017 and December 2018. We then analyzed all home listings that were active on the market at any time during 2018 and any time during 2017, using the list price, HOA dues, property taxes, and insurance, assuming a 20 percent down payment to determine whether the mortgage payment on the home would fall under a 30 percent affordability threshold for the local metro area.

For more information about the survey and its findings, contact Redfin Journalist Services at press@redfin.com.

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