Although the supply of homes for sale is up in many markets, both the number and share of homes that are affordable to a typical household has decreased from a year ago, according to a new report from Redfin, a real estate brokerage firm.
The report considers all homes that were active on the market in 2018 or 2017 and calculates the share of homes in each metro area that were affordable during each year to a household making the median income in that metro area.
Just 14 percent of homes that were on the market in 2018 in the San Jose metro area were affordable on the median household income in the area of $117,000. This is a big drop from 2017, when 26 percent of homes that were for sale were affordable. In Los Angeles, 16 percent of homes for sale were affordable in 2018, down from 20 percent in 2017. In Seattle the share of affordable homes for sale dropped to 46 percent in 2018, from 58 percent in 2017.
Home price gains and interest rate increases through 2018 combined to considerably reduce home affordability. Although the number of homes for sale is increasing, the number of affordable homes on the market has decreased in most metro areas.
"Homeownership is increasingly out of reach for the typical American," said Daryl Fairweather, chief economist at Redfin. "Over the last few years builders have focused on luxury homes, and there hasn't been enough construction of affordable starter homes."
In many metro areas, even as the number of homes for sale has increased, the number of affordable homes for sale has shrunk over the past year. In the San Diego area, there were 10 percent more homes for sale during 2018 than 2017, but the number of affordable homes for sale fell 16 percent. In the Seattle metro, there were 4 percent more homes for sale, but the number of affordable homes for sale fell 17 percent.
Although the share of homes for sale that were affordable on a median income fell from 2017 to 2018 in all 49 of the metro areas included in the report, there were a few metro areas where the number of affordable homes for sale increased, including Hartford, Conn. (+19%), Jacksonville, Fla. (+9%) and Nashville, Tenn. (+4%).
Homebuyers looking for affordable options still have plenty of choices in metro areas like St. Louis (84%), Minneapolis (82%) and Pittsburgh (82%). Strong growth in jobs and wages may also help buyers make up some lost ground as well.
"We expect builders to shift their attention to more affordable homes during 2019," added Fairweather, "which along with rezoning efforts by local governments should reduce this pressure to some degree over time."
