2023 Is ‘Least Affordable Year for Housing in Recent History’: Redfin

California dominates the list of least affordable metros, with Midwest cities ranking among the most affordable.

A “For Sale” sign displayed in front of a home in Miami on Feb. 22, 2023. Joe Raedle/Getty Images

This year has been one of the least affordable homebuying years on record, with individuals having to spend over 40 percent of their monthly income on housing costs, according to a recent report by real estate brokerage Redfin.

“A perfect storm of inflation, high prices, soaring mortgage rates, and low housing supply caused 2023 to go down as the least affordable year for housing in recent history,” Redfin senior economist Elijah de la Campa said in a Dec. 7 press release. An individual making the median U.S. income of $78,642 would have had to spend 41.4 percent of their monthly earnings on housing costs if they bought a median-priced home worth $408,806.

This is up from 38.7 percent in 2022 and is the highest share on record.

In the 50 most populous U.S. metropolitan areas, Austin, Texas, was the only metro that became more affordable. Affordability worsened the least in Detroit, Phoenix, Las Vegas, and Oakland, California.

“Most of these places have something in common: Affordability can’t get much worse because it has already become so strained,” Redfin pointed out.

“Austin, Phoenix, and Las Vegas exploded in popularity during the pandemic as remote workers flocked in, causing home prices to skyrocket. With so many people now priced out, costs have started coming back down to earth.”

Affordability worsened the most in Anaheim, California, followed by Miami and West Palm Beach, Florida, San Diego, and Newark, New Jersey.

These places have one thing in common: home prices are still rising as there is demand from prospective buyers coming in from more expensive locations.

“The good news is that affordability is already improving heading into the New Year,” Mr. Campa said. “Mortgage rates are coming down, more people are listing homes for sale, and there are still plenty of sidelined buyers ready to take a bite of the fresh inventory. We expect these conditions to continue to improve in 2024.”

Tight Housing Market

According to data from Freddie Mac, the 30-year fixed-rate mortgage averaged 7.03 percent for the week ending Dec. 7. While this is down from the recent peak of 7.79 percent in late October, it is still more than double the 3.1 percent from roughly two years back.

Next year, Redfin is predicting new home listings to climb further, mortgage rates to drop to about 6.6 percent, and home prices to decline by 1 percent.

Experts blame the tightening of the U.S. housing market on elevated interest rates. Many homeowners are reluctant to sell their properties as this could mean they would have to buy a new home at high interest rates.

Several homeowners are already locked in with much lower home mortgage rates at about 3 percent. As such, selling a property now would mean they will have to look for a new home with a mortgage rate of about 7 percent.

“If there’s nothing out there for me to buy, why would I sell? We are all kind of stuck in that paradigm right now,” chief economist Matthew Gardner from Windermere Real Estate said at a November conference, according to Axios.

Data from the National Association of Realtors (NAR) housing affordability index shows that homebuyers have to shell out 27.4 percent of their incomes as mortgage payments as of October 2023, which is almost double the 14.7 percent in 2020.

Americans in the West had to shell out 38.9 percent of their incomes as mortgage payments in October, the highest among the four regions. The Midwest was the most affordable, with people only having to spend 20.3 percent on mortgages.

During this period, the income needed to qualify for a median-priced existing single-family home jumped from $49,680 to $108,432.

Possible Relief Next Year

In a Nov. 30 report, economists at real estate marketplace firm Zillow predicted “more homes for sale” and “improved affordability” in 2024.

As more homeowners realize that elevated mortgage rates are here to stay, they are likely to sell their properties rather than holding them in hopes of lower rates, the firm said.

Many of these homeowners “will have their eye on a home with a bigger (or no) backyard, an extra (or fewer) bedroom, or in their preferred neighborhood across town, and Zillow predicts more of these homeowners will end their holdout for lower rates and go ahead with those moves.”

Home buying costs are expected to “level off” next year, giving hopeful buyers a chance to finally buy their desired homes.

“Zillow’s latest forecast calls for home values to hold steady in 2024, falling 0.2 percent. Predicting how mortgage rates will move is a nearly impossible task, but recent inflation news gives the impression that rates are likely to hold fairly steady as well in the coming months,” the report said.

“Taken together, the cost of buying a home looks to be on track to level off next year, with the possibility of costs falling if mortgage rates do.”

Heather Mahmood-Corley, a Redfin Premier real estate agent in Phoenix, said in November that a lot more owners have approached her to list their homes for sale, which she says was “a reversal from recent months.”

However, “while I’m seeing more sellers in the market, they’re squirrely too. They’re backing out when they don’t get the price they want,” she said.