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After falling to record lows, the supply of homes on the market is finally rising. But a growing share of those homes are still out of reach to most buyers.
In hot markets like Seattle, San Jose, California, Las Vegas and Portland, Oregon, the number of homes for sale rose last year. Even so, the share of affordable homes fell, thanks to rising home values and increasing mortgage interest rates.
In Seattle, 58 percent of homes were considered affordable in 2017, but that share dropped to 46 percent last year, according to a survey from Redfin, a real estate brokerage. The number of homes for sale increased by 4 percent.
In Las Vegas, 72 percent of homes were affordable in 2017, but 63 percent were in 2018, even as the supply of homes for sale increased 10 percent.
Redfin calculated the share of homes in each metro area that were affordable during each year by using a household making the median income in that metro area, assuming a 20 percent down payment, an interest rate of 4.64 percent for 2018 and 3.95 percent for 2017, and a monthly mortgage payment of no more than 30 percent of gross income. Redfin defines this as "middle-class" buyers.
"Homeownership is increasingly out of reach for the typical American," said Redfin's chief economist, Daryl Fairweather. "Over the last few years builders have focused on luxury homes, and there hasn't been enough construction of affordable starter homes."
Homebuilders have been faced with higher costs for land, labor and materials, and most blame those issues for their focus on move-up, rather than starter homes. Demand is also stronger closer to major metropolitan areas, where construction costs are far more expensive. Some builders have offered incentives, but few are actually lowering prices, despite weaker earnings and sales at the end of 2018.
The share of homes for sale that were affordable on a median income fell in 2018 in all 49 of the metro areas that Redfin analyzed, but in a few markets, affordability increased; those include Hartford, Connecticut, Jacksonville, Florida, and Nashville, Tennessee. Other large markets have historically been very affordable, like St. Louis, where 84 percent of homes are affordable to median-income buyers. Minneapolis and Pittsburgh also have a similar share.
Home sales across the country dropped dramatically in December, according to the National Association of Realtors. Those numbers were based on closings, which were deals made in October, when mortgage rates spiked higher. Rates have since fallen back somewhat, although they are still higher than they were a year ago. Should rates start to rise again, affordability will weaken further, but if they stay where they are now, or even fall, more homes will become more affordable.