Low-income Americans have lost the homebuying progress they made during the COVID-19 pandemic as the price of houses for sale increased and mortgage rates remain elevated, according to a report.
Roughly one in five, or 20.6%, of new mortgages issued in 2023 went to low-income homebuyers. That's down from 23.2% of all new mortgages recorded in 2020, during the pandemic housing boom, per a new Redfin analysis.
Homebuying progress has also reverted for very low-income homebuyers. Last year, 6% of new mortgage issues went to very low-income Americans. In comparison, the number was at 7.7% in 2020.
Higher-income homebuyers are now taking up the share of new mortgages that lower-income Americans have lost since the pandemic, with 44.8% of all new mortgages issued last year going to high-income Americans, the analysis noted.
Why Homebuying Is Becoming Out of Reach for Lower-Income Americans
Housing affordability dropped to a record low in 2023, with median income-earning homebuyers needing to spend 41% of their earnings to cover monthly housing costs.
There are numerous reasons why housing affordability has worsened since then. First, the median home sale price has increased to $420,321 as of March 2024. That's 4.8% higher than the median list price in the same month last year.
Mortgage rates have also remained elevated. As of the week ending May 2, the rate for the 30-year mortgage was 7.22%, while the rate for the 15-year term was 6.47%, according to Freddie Mac. Mortgage rates are not expected to drop much this year. The Mortgage Bankers Association (MBA) predicts mortgage rates will only decline to 6.4% by the end of 2024.
Apart from elevated home prices and mortgage rates, a lack of supply is also leading to rising costs.
"There was a sweet spot in 2020 when mortgage rates were ultra-low and home prices had yet to skyrocket, allowing some lower-income Americans to break into the housing market," Redfin Senior Economist Elijah de la Campa said in the analysis. "But somewhat ironically, the continued strength of the economy has made it harder to afford a home and widened the real-estate wealth gap between rich and poor Americans."
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