Redfin Reports Low-Income Americans Have Lost the Homebuying Progress They Made During the Pandemic

(NASDAQ: RDFN) — Roughly one in five (20.6%) new mortgages issued last year went to low-income Americans, bringing that group’s piece of the homebuying pie back down to where it was in 2018. That is according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

Low-income earners gained ground at the start of the pandemic, taking out 23.2% of all new mortgages in 2020, but that progress has since been erased because high home prices and elevated mortgage rates have eroded affordability.

The small bit of progress that Americans earning very low incomes made on taking out mortgages at the start of the pandemic has also been erased. Just under 6% of new mortgages issued last year went to very low income Americans, down from 7.7% in 2020. Very-low-income Americans now make up a smaller percentage of mortgage borrowers than they did in 2018 (7.1%).

Higher-income homebuyers are taking up the share of new mortgages that lower-income homebuyers have lost in the last several years. While low-income borrowers gained share during the pandemic and then lost it, the opposite has happened with high-income borrowers, who are more prepared to weather the storm of high prices and rates. Nearly half (44.8%) of all new mortgages nationwide went to high-income buyers in 2023, bringing that group’s piece of the pie back up to almost exactly where it was in 2018. Their share dipped to a low of 41.2% in 2020.

This is according to a Redfin analysis of Home Mortgage Disclosure Act (HMDA) data covering purchases of primary homes.

Homebuying has become increasingly out of reach for lower-income people because housing affordability dropped to a record low in 2023 due to sky-high home prices and mortgage rates. Affordability hasn’t improved during the first few months of 2024:

• Home prices: Today’s median-home sale price is about $420,000, up 5% year over year. That’s up nearly 40% since the start of the pandemic in March 2020 and up nearly 50% since March 2019.
• Mortgage rates: Today’s average 30-year mortgage rate is about 7.2%, up from 6.43% a year ago and more than double the record low of 2.65% in 2021. It’s also higher than the 4% to 5% levels in 2018 and 2019.
• Monthly payments: The typical homebuyer’s monthly payment is now a record-high $2,886, up 13% year over year. That’s up from just over $1,500 in both March 2020 and March 2019.
• Down payments: The typical down payment for someone putting down 20% is $84,000, up from $80,200 a year ago, $60,800 in March 2020 and $56,800 in March 2019.

While the U.S. economy is fairly strong, unemployment is low and wages are increasing, housing costs are increasing much faster. Hourly wages are up roughly 5% year over year, while monthly housing costs are up 15%. Surging housing costs have an outsized impact on low earners, who are less likely to have money in the bank for down payments and record-high monthly payments.