Home affordability in America dropped to a record low in 2023, according to a report released Thursday by the real estate brokerage firm Redfin.
The Seattle-based company said this year has been the most expensive year for home-buying in its records. A homebuyer making the median U.S. annual income of $78,642 had to spend 41.4% of their total income on housing costs if they bought a median-priced U.S. house ($408,806) in 2023.
"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 press release.
Redfin's analysis assumes a 20% down payment, principal, interest, taxes and insurance; median home sale prices; and average monthly mortgage rates.
The report noted that the housing market of recent years has totally blown up the conventional wisdom on budgeting: Don't spend more than 30% of your earnings on housing.
Homebuying costs have outpaced wage growth this year. According to Forbes, this November, the median annual pay increase for U.S. workers who stayed in their jobs was 5.6%, the lowest hike since September 2021. The median raise for workers who changed jobs was 8.3%, the lowest since June 2021.
Also a factor in the housing market: Corporations funded by private equity firms like Blackstone have been buying up homes to rent them out. MetLife Investment Management predicted last year that institutional investors will control 40% of single-family rental homes by 2030, per CNBC.
This trend ignited on Wall Street in the wake of the 2008 housing crisis, according to a 2022 paper by University of California-Berkeley researchers Desiree Fields and Manon Vergerio. But now that foreclosures have dwindled, single-family rental (SFR) companies have adopted a new tactic: forging partnerships with builders and building for rent.
With a backlog in housing construction, a shortage of construction workers and continued supply chain holdups, that means that fewer of the new homes built in the U.S. will go to single-family homebuyers. Meanwhile, the investors renting these new homes out tend to pursue "aggressive eviction practices, efforts to achieve cost savings at the expense of tenant safety... [and] predatory investment models," the Berkeley researchers found.
"In response to rising asset prices, SFR operators (and homebuilders) are doubling down on unsustainable development models with 'build for rent' projects," the researchers write. "They are rapidly acquiring land and control over development of new rental opportunities, fueling large-scale suburban homebuilding operations."
Despite all that, the Redfin report predicted that relief is on the horizon for some homebuyers. Affordability is increasing as 2023 winds down, it said, and Redfin analysts expect that trend to continue in 2024.
"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," said de la Campa. "We expect these conditions to continue to improve in 2024."
