Even in a housing market that has slowed significantly due to rising mortgage rates, the supply of homes for sale is roughly half of what it was in 2019.
The shortage will affect some buyers more than others.
The popular 30-year fixed mortgage rate hovered in the high 6% range in May. at that level buyers with an annual income of $100,000, slightly above the national median, could afford a home with a maximum price of about $341,000. But only 39% of homes for sale were listed at or below the price point in May, according to a new report Thursday from Realtor.com with the National Association of Realtors.
In a balanced supply and demand market, 64% of homes should be available to buyers earning $100,000 a year, given the size of that population. As a result, there are currently about 285,000 of these listings missing from the market.
Just five years ago, these earners could afford two-thirds of the homes for sale. House and mortgage prices were significantly lower.
A shortage of affordable homes has fueled competition in the market this spring, reversing a cooling in home prices that began last summer.
“It’s almost a tale of two cities where we have homes under $500,000, they’re selling absolutely incredibly fast. Under $350,000 and $400,000, there are several offers,” Noah Herrera, a Las Vegas real estate agent, said during the open house in mid-May. “Over $500,000 it slows down a little bit.
There are too many homes for sale in the higher price ranges for the number of Americans who can afford them. In fact, for every home listing over $680,000, the market is missing twice as many homes under $341,000.
“Remaining high housing costs and a shortage of affordable homes continue to pose budget challenges for many potential buyers and are likely keeping some buyers in the rental market or on the sidelines, delaying their purchase until conditions improve,” said Realtor.com’s chief economist . Danielle Hale.
The current expensive home market is pushing more buyers to new construction, which, paradoxically, used to be at a premium. Homebuilders offer incentives such as upgrades or temporary mortgage rate reductions. However, these are decreasing as builders see more demand and gain more pricing power.
As with everything else in real estate, location is everything. The areas with the greatest shortage of affordable homes are El Paso, Texas; Boise, Idaho; Spokane, Washington; several Florida markets; and of course Riverside and Los Angeles, California, which are some of the most expensive housing markets in the country.
Areas in the Midwest continue to have the highest number of affordable homes. The four cities with the largest supply of affordable homes are all in Ohio. They are followed by Syracuse, New York; Pittsburgh, Pennsylvania; and St. Louis, Missouri.
The supply situation does not appear to be improving. New listings for homes for sale in the first week of June fell 25% year over year to the lowest level since early June on record, according to Redfin.
This lack of new listings pushed the total number of homes on the market down 5% from the same period a year ago.