AFFORDABLE HOUSING: Families in lower, middle classes increasingly priced out of homes

Mortgage payments on homes sold at the median price across the U.S. have nearly tripled over the past decade.

The growth of median salaries hasn’t approached that pace.

There are fewer homes for sale nationally, and those listed on the market are more expensive than ever. Middle-class Americans, particularly on the lower end, are finding themselves priced up and priced out of the housing market for single-family homes.

Households earning median incomes or less could afford just 1 in 5 real estate listings by the close of 2022, according to analysts from the Urban Institute, a Washington, D.C.-based think tank.

“This is a huge decline. In 2016, those same households could afford roughly half of the homes that were listed for sale,” said Amalie Zinn, a research assistant with Urban Institute’s Housing Finance Policy Center.

Over the past month, reporters from CNHI News nationwide have sought to examine the issues surrounding affordable housing, who is most impacted by a lack of it and what solutions states and communities have implemented in this multipart special report.

The National Association of Realtors found that there was just one listing considered affordable for every 65 households earning $75,000 to $100,000 annually in 2021, down from 1 in 24 in 2019.

The median sales price of homes in the fourth quarter of 2012 was $251,700, according to data from the Federal Reserve Bank of St. Louis. At the approximate 18% average down payment as reported by real estate firm Redfin and the 3.34% interest rate at that time, the monthly mortgage for a 30-year fixed loan was roughly $908.

Such payments shot to $2,630 by the close of 2022, when the median sales price hit $467,700. Down payment averages sunk to 10%, and interest rates stood nearly double at 6.39%. The end result is a 44.6% increase in the monthly bill in 10 years’ time at the median level.

Tough on middle-income earners

Doubling the current average down payment likely wouldn’t help affordability for middle-income earners in the scenario above, according to Nadia Evangelou, senior economist and director of real estate research with the National Association of Realtors.

“A middle-class income still can’t afford to buy,” Evangelou said. “Of course, it’s a local issue. There are some areas where affordability is better than others.”

Census Bureau data shows the median income in 2012 was $60,313, compared to $70,784 last year.

Housing market indicators studied by the U.S. Department of Housing and Urban Development show affordability exists among median-income earners, and that as of February, those considered middle-income households earn just enough to qualify for a 30-year fixed loan. But the affordability index stood about 30 points below historic norms.

Those who own homes are at a serious advantage in terms of building wealth and cashing in on the current market. National Association of Realtors calculations found that low-income homeowners built $98,900 in wealth since 2012 from home price appreciation alone. Middle- and upper-income owners amassed $122,100 and $150,800 on average.

That wealth accumulation is reflective, in part, of demand.

Month-to-month sales of existing and new homes in early 2023 were up but well below year-over-year returns. According to data studied by HUD, the overall inventory of new and existing homes did climb in February, but the lack of housing stock is still in the extremes.

The homebuying website Realtor.com estimates the country is short on single-family homes by up to 6.5 million units. A swell of multifamily home construction drops that gap to 2.3 million homes, but such development is more prevalent in highly populated areas.

New home construction in February was down nearly 32% compared to February 2022, according to HUD, while construction of multifamily homes — five or more units in a single structure — climbed by 14% above the year prior.

The lack of housing is evident in Pennsylvania, according to a data study by the commonwealth’s Independent Fiscal Office. There were 41,421 new listings in March 2022, with 11,803 sold at a median price of $197,787. Last month, new listings fell year-over-year to 33,215, with 9,744 sales at a median price of $200,787.

Completed construction and manufactured home shipments topped 1.5 million units in 2022, the highest total since 2007, said Leonard Kiefer, deputy chief economist with Freddie Mac. He said that from 1968 until 2007, there were only four years when the U.S. ended a year with fewer new housing units.

“We’re making progress, adding new units and trying to fill a hole that’s built up over a decade, but the gap is substantial,” Kiefer said.

Kiefer said 2023 is trending to be a tough year for homebuyers. He said that climate could carry at least into next year, too. A limited supply of homes for sale drove prices high above the rate of inflation, he said, pointing to the estimated $12 trillion in equity homeowners collectively added since 2019.

From an affordability perspective, Kiefer said the environment is challenging. However, for middle-class America, the environment hasn’t evaporated.

“I don’t believe that,” Kiefer said when asked if the market is gone for the middle-class and lower-middle class. “There are challenges, but they are not insurmountable, I believe.”

To best navigate the existing market, Zinn recommends homebuyers seek help from housing counselors. A list of nationally approved agencies and a link to a searchable database is available at HUD.gov.

Counselors help decide whether the timing is right for a prospective buyer to purchase. They discuss short-term and long-term implications. Zinn said they can also help current homeowners avoid delinquencies and repossession. There’s aid for down payment assistance, mortgage buy-down to lower interest rates, and more.

Jung Hyun Choi, the senior research associate with Urban Institute’s Housing Finance Policy Center, pointed to downpaymentresource.com as one option for information. Choi said those with lower incomes seek information on government-sponsored enterprise loans and programs for first-time homebuyers.