In a housing market where so many prospective homebuyers are being sidelined, with families who might otherwise be on the cusp of homeownership crushed to find their savings insufficient or every listing disappearing before they have time to react, the question is, why? Why is it that middle-income people, who in previous decades would be in their prime homebuying years, are failing to find homes, even with new work flexibility and rising wages?
The answer requires a look at multiple factors, according to a new report from the National Association of REALTORS® (NAR) in partnership with realtor.com®, which explores what it calls the “double trouble” of the current housing market. According to this new analysis, the well-documented trends of spiraling home prices and scarce inventory are intrinsically connected, and understanding that relationship will be key to ensuring a healthy housing market for everyone.
“What makes this different from previous research is that it connects affordability with currently, our level of housing supply,” says Nadia Evangelou, NAR senior economist and director of forecasting, who wrote the report. “ these troubles that we currently see in the housing market.”
Rather than simply laying out prices and availability of homes on a broad scale, the report looked at the number of households potentially competing for active listings—that is, how many other people in an area are potentially shopping for the same home. It also uses more granular income data, breaking down demographics into 12 categories to better understand exactly who is most limited, and most likely to have to compete with other buyers for a home.
The analysis found that overall, it is upper-middle income households that have lost the most in the current housing market—those earning between $50,000 and $150,000.
For those making $50,000 to $75,000, affordable listings fell 6% while the number of active listings in that price range fell 63%, meaning increased competition. The number of homes available to families making $100,000 to $125,000 fell by 8% between 2019 and 2021, and those households saw competition for listings in their price range more than double, with an average of 36 other buyers per listing in that market, up from 14 pre-pandemic.
Evangelou says this was one of the more striking data points revealed by the analysis—just how much the twin inventory and affordability crises affected people who are nominally well-off financially.
“The middle income is losing ground…this is not something that is surprising, though,” she says. “We may have wealth gaps between middle and upper income .”
An over lack of entry-level homes is contributing to this gap, Evangelou explains, but the issue will continue to be local. Some traditionally expensive markets—San Francisco, for instance—saw affordability increase overall, simply because people living there have seen their already-high incomes increase, while mortgage rates fell.
These areas have generally also seen a population decline and out-migration, though, possibly because those who cannot afford to live there are leaving—though Evangalou said the analysis did not delve into that issue.
For lower-income people, the overall affordability of homes has stayed roughly the same. People earning $35,000 and less could afford 13% of homes in 2019, compared to 12% last year. But the inventory crunch has hit these already-limited households hardest, with competition for these listings also more than doubling, with an average of 175 potential buyers per listing in 2021 compared to 69 in 2021.
Where to live
An extremely powerful way the new analysis was able to conceptualize the “double trouble” issue was delineating both regionally and income simultaneously. For all 12 income categories—from $15,000 and under, to $500,000 and over—the report listed the best cities for buyers based on how many affordable listings there were, and how many other households are currently competing for those listings.
For the median household income level in 2022 (about $67,000, according to the Federal Reserve), the most affordable city is Des Moines, Iowa, with 592 listings available.
But even there, a family making that amount is potentially competing with a staggering 78 other households that can all afford that home.
In Los Angeles, California—the third-least-affordable market for that income bracket—there were only 153 available listings for that bracket, and more than 618,000 people competing for those. That means there is one listing per 4,201 families that can afford that house.
The disparity between this middle-income bracket and upper incomes is alarmingly vast. The most affordable city for those making between $200,000 and $250,000 is Mission, Texas, with 965 active listings. An average family in Mission, at that income would only be competing with three other households for a listing there.
Evangelou says the analysis can be used to see exactly what areas are failing to serve what parts of their populations. Nearly everywhere needs more entry-level homes, and the report points out that nationwide, high rents are pushing people further from homeownership, with half of renters cost-burdened paying more than 30% of their income for rent.
The solution in a large metro might be very different than for a more rural state, she says, and migration patterns continue to favor smaller cities in the South and Midwest—which also happen to contain most of the markets that are affordable for upper-middle incomes and have available inventory (of the top cities for incomes between $50,000 and $150,000, only one was not located in these two regions).
“People are still moving to smaller areas, and one of the main reasons is affordability,” she says. “They can move to the suburbs . Why rent, why not buy a home they can afford to buy?”
Most of these areas also have thriving job markets, meaning that migration to those places is not entirely driven by remote workers who work for companies based in big coastal cities.
Notably, the analysis also factored race into its data. Because families of color on average have lower incomes, their choices in homes is lower overall, and the competition they face is more extreme than white families. It also identified cities where there is the largest racial gap in affordability—where significantly more homes are available to white families compared to Black and Hispanic families based on differences in income.
Bridgeport, Connecticut; Charleston, South Carolina; Minneapolis, Minnesota; Portland, Maine and San Francisco, California all had housing that was twice as affordable to white families compared to Black families living there.
Areas in the Northeast and West dominated the lists of places least affordable for local Black and Hispanic folks. San Diego and Los Angeles were the least affordable for both Black and Hispanic buyers, with Spokane, Washington and Portland, Maine also on the list for Black families, and Austin, Texas and Providence, Rhode Island broadly unaffordable to Hispanic families.
Jesse Williams is an associate online editor at RISMedia. Email him your real estate news ideas at jwilliams@rismedia.com.
