Although housing inventory is increasing, affordability for the typical middle class household is retreating, according to new data from Redfin.
“Homeownership is increasingly out of reach for the typical American,” Redfin Chief Economist Daryl Fairweather said. “Over the last few years builders have focused on luxury homes, and there hasn’t been enough construction of affordable starter homes.”
Redfin calculated housing market data ranging from 2017 to 2018, focusing on the share of affordable active listings that were available to households making the median income across 49 metro areas.
In San Jose, just 14% of homes that were on the market in 2018 were affordable for those making the area’s median household income of $117,000. This is a significant decrease from 2017 when 26% of homes for sale were affordable, according to the company.
Redfin attributes this lack of affordability to gains in home prices and interest rates.
According to ATTOM Data Solutions' latest affordability report, in the fourth quarter of 2018, the median home price reached its least affordable level since the third quarter of 2008.
“While poor home affordability continues to cloud the U.S. housing market, there are silver linings in the local data as home price appreciation falls more in line with wage growth," ATTOM Data Solutions Senior Vice President Daren Blomquist said.
In fact, Redfin determined that although the share of affordable homes for sale in these 49 metros fell from 2017 to 2018, a few metros experienced growth in affordability.
These areas included Hartford, Connecticut, where the share of affordable homes grew 19%; Jacksonville, Florida, which increased 9%; and Nashville, where affordable inventory rose 4%.
Furthermore, Redfin notes homebuyers still have housing options in St. Louis, where 84% of homes are affordable to the typical buyer, and Minneapolis and Pittsburgh where 82% of homes meet the average buyer's budget.
Fairweather said Redfin expects homebuilders to shift their attention to more affordable homes in 2019, which along with rezoning efforts by local governments should reduce this pressure to some degree over time.
That being said, according to the latest Housing Market Index from the National Association of Home Builders/Wells Fargo, persistent affordability concerns have contributed to homebuilder confidence retreating four points to 56 in December of last year.
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NOTE: Redfin’s housing affordability data is calculated with the assumption that a home required a 20% down payment and an interest rate of 4.64% in 2018 and 3.95% in 2017. As well as a monthly mortgage payment that exceeded no more than 30% of a homebuyer’s gross income.