Topline
Homebuying has become increasingly harder for lower-income Americans as housing affordability hit an all-time low in 2023, driven by soaring home prices and mortgage rates, which persisted into early 2024, according to Redfin.
Key Facts
Around 26% of new mortgages in 2023 were issued to low-income Americans, who earn 80% or less of their area median income, down from 31% in 2020, a new Redfin report found.
High-income earners, who earn 121% or more of their area median income, accounted for nearly half (44.8%) of the new mortgages in 2023, up from 41.2% in 2020.
The Midwest and some East Coast metros remain relatively affordable to low-income earners, if new mortgages are any indication: they make up 50.4% of new mortgages in Detroit, followed by Philadelphia (49.2%), Minneapolis (44.3%) and Cleveland (40.6%).
California metros and Miami accounted for the lowest percentages of new mortgages issued to low-income earners, with Anaheim being the lowest at 3.8%, followed by Miami (5%), Los Angeles (5.2%), San Diego (6.3%) and San Francisco (7.9%).
In 2023, homebuyers with the typical local income had to spend over 80% of their pay on monthly housing costs to buy a median-priced home in San Francisco (85.4%), followed by Los Angeles (72.9%) and San Diego (64.6%).
In contrast, Detroit (18.5%) and Pittsburgh (23.5%) were the most affordable cities, according to Redfin’s December report.
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Key Background
At the onset of the pandemic, low interest rates and a temporary dip in home prices created a “sweet spot” for homebuyers, particularly benefiting lower-income Americans, according to Redfin Senior Economist Elijah de la Campa. However, home prices skyrocketed during the pandemic buying surge and have remained high amid the housing shortage, while the Federal Reserve’s historic interest rate hikes in 2022 and 2023 pushed mortgage rates to near their highest levels in more than two decades, “widening the real-estate wealth gap between rich and poor Americans,” Campa noted.
News Peg
Home buying affordability reached an all-time low in 2023. A median U.S. income earner had to spend as much as 41.4%—the highest share on record—of their earnings on monthly housing costs to afford a median-priced U.S. home. Rising home prices and mortgage rates still show no signs of easing. According to Redfin’s report, the median home sale price has risen to $420,000, up 5% from the previous year and around 40% since the beginning of the pandemic in March 2020. Mortgage rates have reached 7.2%, up 6.4% year-over-year and more than double the low of 2.7% in 2021. As a result, the monthly mortgage payment has surged to a record-high of $2,886, up 13% from last year and 90% from March 2020, when it was just over $1,500.
Big Number
$84,000. That’s the general down payment required for a home purchase at a 20% down payment rate, a 5% increase from the previous year ($80,200), up 38% from March 2020 ($60,800) and 48% from March 2019 ($56,800).
