Less than one-sixth of homes listed in the U.S. between January and November were considered affordable for the average household, according to a report by real estate brokerage Redfin. Out of the total 352,500 homes listed in the first 11 months of the year, only 15.5% met the criteria for affordability.

Redfin's affordability calculations were based on whether the estimated monthly mortgage payment on a home was no more than 30% of the median income in the local county. This calculation also assumed a 5% down payment, which is typically the minimum amount accepted by lenders.

However, there are some limitations to these estimates. Some buyers are able to make larger down payments, reducing their mortgage payments. Additionally, many buyers are willing to allocate more than 30% of their income towards housing costs. It should also be noted that not all buyers are from the local area.

The report highlights that affordability has become increasingly challenging in recent years. Other measures indicate that housing affordability reached all-time lows in late 2023, and the average monthly mortgage payment in the U.S. has doubled over the past three years.

The issue of affordability has particularly affected Black and Latino buyers, who, on average, have lower incomes and less wealth compared to white buyers. Redfin reveals that only 21.6% of homes listed for sale were affordable for the average white household, compared to 10.4% for Hispanic/Latino households and a mere 6.9% for Black buyers.

This drop in affordability stems from two interrelated factors. Firstly, home prices surged following the onset of the pandemic as a result of people moving away from cities, remote work becoming more prevalent, and a slowdown in home construction. Secondly, mortgage rates have risen significantly since March 2022 due to the Federal Reserve's interest rate hikes.

According to data from the Federal Reserve, 30-year mortgage rates climbed from below 4% in early 2022 to a peak of 8% in October. As mortgage rates increased, fewer people could afford to borrow the necessary funds to purchase a home. Even for those who could obtain a loan, their purchasing power diminished.

Consequently, existing homeowners were less inclined to sell their properties, as they would have needed to enter into a new mortgage agreement at a considerably higher interest rate. This led to a spiral of price increases that persisted for several years.

Redfin's analysis reveals that in 2013, 50% of listed homes were considered affordable. This percentage stood at 45% in 2020 before plummeting over the past few years.

However, there is some positive news on the horizon. Recent months have seen a slight improvement in housing affordability as mortgage rates have fallen. Freddie Mac reports that the average rate on a 30-year fixed mortgage is now 6.67%. While this is significantly higher compared to the rates from 2010 to 2022, it represents a considerable decline from the peak in October.

This change has motivated a few more buyers to list their homes for sale, increasing the supply and subsequently exerting downward pressure on sale prices for older homes. Redfin predicts that this trend will likely continue into 2024.

Furthermore, the construction of new homes is on the rise, which should contribute to increased affordability to some extent. Expectations of further decreases in interest and mortgage rates in the coming years offer some hope, even though it is unlikely that overall home prices will return to their pre-pandemic levels.