Homeownership is becoming increasingly unaffordable for the average American, but new real estate analysis suggests that ethnic minority groups are hit hardest by housing unaffordability.
Home Ownership Blues
According to a new analysis from U.S. real estate brokerage Redfin, most potential homebuyers in the States feel like home ownership is now out of their reach. However, this same analysis suggests that certain groups will face more issues buying property than others.
Minorities Hit Hardest
Redfin data suggests that some racial minority households are less likely to be able to afford homeownership compared to U.S. buyers of European descent.
Small Percentage of Opportunity
Their analysis showed that the average Black household on a median income who used their services could only afford 7% of listings. The average Latino customer could afford just 10%.
Better Prospects for White Buyers
This was compared to white buyers, who, on average, could afford around 22% of listings.
Not True for All
However, these statistics are not true for all racial minorities. Asian households looking to buy with Redfin on the median income were eligible to buy 27% of all listings.
Wage Gap Plays a Big Part
Redfin’s chief economist Daryl Fairweather has pointed out that the wage gap between different ethnic groups is the main driver for this data. “The wage gap is a big part of it,” he said.
House Prices Soar
“Home prices have become so expensive in a lot of metro areas,” he continued. “It makes it really hard for Black and Latino households to be able to afford a home compared to their white counterparts.”
The Higher the Rate, the Higher the Payment
He also pointed out that mortgage rates and payments made it more difficult for low and median-income earners. “The higher the mortgage rate, the higher a mortgage payment will be. It creates another barrier for people with less income to put towards a down payment.”
Metropolitan Areas Becoming Unaffordable
Over the last few years, even the most affordable major metropolitan areas (which often have higher Black and Latino populations) are becoming more unaffordable for residents.
Even Detroit Is Affected
In Detroit, which still maintains some of the lowest rent payments on average, housing prices jumped by 21.4% between 2022 and the end of 2023.
City Statistics
Here, the average black household on a median income could afford 31.8% of 2023 listings, compared to 50% for Latinos and 66% of white households.
Racial Housing Affordability Gap
The Redfin report did not mince words when it released its analysis on the subject, writing, “The racial housing affordability gap exists nationwide, from the least affordable metros to the most affordable metros.”
Everyone Has Been Affected
In general, the housing market has become increasingly inaccessible to many Americans. Redfin classifies housing as affordable if median-income buyers only need to spend 30% of their income on mortgage payments annually.
No Longer Practical for Many
But unfortunately, the gap between income and house prices has widened considerably in recent years. In 2023 the average homebuyer would have to earn $109,868 annually in order for the average mortgage payment to only cost 30% of their income.
Increasingly Out of Reach
This is out of reach for most average Americans, considering that the average Black household has a median income of $52,860, the average Latino household sits at $62,800, and the average white household at $81,060.
Not All Doom and Gloom
While things may look bleak, it’s not all doom and gloom, according to Redfin, who pointed out that minority groups saw a jump in wages in 2023, which could contribute to ending the racial difference in housing affordability.
Another Redfin Report
Elijah de la Campa, a senior economist at Redfin, released another report indicating that things could be looking up for all buyers in 2024.
The Perfect Storm
“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,” he wrote. “The good news is that affordability is already improving heading into the new year.”
Price Drops Expected
Redfin expects average rent prices to drop in 2024, meaning that many renters will have more to put aside for potential down payments. They also expect a 1% drop in house prices by the end of 2024 due to an increase in construction and, therefore, housing supply. And that’s not all.
Affordability Should Improve
“The drop in mortgage rates we are forecasting should improve affordability,” Fairweather added. “And since asking rents have been declining for three months in a row, that will put downward price pressure on more affordable, smaller homes. This should improve affordability for first-time home buyers seeking starter homes.”
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The post Detroit Joins Housing ‘Unaffordability’ Trend: 31.8% Can’t Afford to Buy, Minority Communities Hit Hardest first appeared on From Frugal to Free.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
