Housing affordability plummeted this year to the lowest level on record amid the astronomical rise in mortgage rates, which put ownership out of reach for millions of Americans, according to a new report published by Redfin.
Just 15.5% of homes for sale in 2023 were considered affordable for the typical U.S. household, the lowest level on record since Redfin began tracking the data in 2013. It marks a steep drop from the typical 40% seen before the COVID-19 pandemic home-buying boom began, and the 20.7% figure recorded in 2022.
The decline in affordability is partially due to a drop in listings – which fell 21.2% over the course of the year – but is largely a result of the spike in mortgage rates and subsequent rise in home prices this year.
Combined, the two have helped to push the typical portion of average wages nationwide required for major homeownership expenses up to 35%, according to a separate report published by real estate data provider ATTOM.
The Federal Reserve's aggressive interest-rate hike campaign sent mortgage rates soaring above 7% for the first time in nearly two decades last year. Rates notched a new 23-year high in October, though they have started to slowly retreat since then as many investors believe the Fed is done raising interest rates.
The average rate for a 30-year fixed loan fell to 6.67% this week, Freddie Mac reported, but that remains well above both the 6.27% rate recorded one year ago and the pandemic-era lows of 3%. The typical monthly mortgage payment costs about $250 more than it was one year ago, according to the Redfin report.
Even though mortgage rates are more than double what they were three years ago, home prices have hardly budged.
That is largely due to a lack of available homes for sale. Sellers who locked in a low mortgage rate before the pandemic began have been reluctant to sell, leaving few options for eager would-be buyers.
The number of available homes on the market at the end of November was down by more than 4% from the same time last year and down a stunning 34% from the typical amount before the pandemic began in early 2020, according to a recent report from Realtor.com.
The good news, however, is that housing affordability is finally beginning to improve – and could continue to get better in 2024.
"Many of the factors that made 2023 the least affordable year for homebuying on record are easing," said Elijah de la Campa, Redfin senior economist. "Mortgage rates are under 7% for the first time in months, home price growth is slowing as lower rates prompt more people to list their homes, and overall inflation continues to cool."