Number of affordable homes is plummeting

While buying a Bay Area home became an even harder prospect in 2023, affordability in other areas suffered even more. This year was the most unaffordable for buyers nationwide in at least a decade, with the number of affordable homes plummeting in many California cities.

That’s according to a new report from real estate brokerage site Redfin, which found that only about 16% of homes listed in 2023 were priced at an affordable level for their areas. In 2022, that figure was at 21%, itself a steep drop from 50% in 2013, the earliest year for which Redfin has data.

Redfin considers a home affordable when its monthly mortgage payment would be no more than 30% of the area’s median household income, assuming a 5% down payment and the average 30-year mortgage rate at the time of listing. The 2023 data is through November.

In the San Francisco metro area, which includes the city of San Francisco and San Mateo County, Redfin considered just 0.3% of listings affordable. That rate ties with the Los Angeles and Oxnard metro areas for the least affordable out of the 100 largest metros for which Redfin has data. In the San Jose metro area, 0.4% of homes were affordable, while 2% of listings in the Oakland area were affordable. 

That’s not a new story for many of these areas. Since 2013, the earliest year for which Redfin has data, less than 1% of San Francisco metro area listings have been affordable.

But affordability in other metro areas had further to fall, according to Redfin’s report. The Sacramento metro area saw its share of affordable homes dwindle from 15% in 2021 to 4.4% in 2022 and 2.8% in 2023.

Metros in other areas of the country that have been relatively affordable for home buyers became much less so this year. Roughly 28% of homes in the Kansas City metro area were affordable in 2023, 15 percentage points less than in 2022, when mortgage rates started rising.

Those higher rates are likely the main driver behind falling affordability, said Sheharyar Bokhari, senior economist at Redfin. Besides making it harder for buyers to keep their monthly payments to a manageable level, they also discouraged homeowners — especially those with much lower rates — from listing their properties and moving. That reduces housing inventory, forcing buyers to outbid each other for homes.

“What this (report) is showing is this year was one of the worst — probably the worst — in the past decade in terms of affordability,” Bokhari said.

Home values fell in early 2023 as high mortgage rates slowed the market. But in recent months, according to real estate listing site Zillow, values started climbing again, with inventory remaining lower than normal while demand recovered.

Economists have generally predicted that mortgage rates will decline next year, though not to the record lows of 2021. That will make homes generally more affordable, Bokhari said, since the labor market remains strong with solid wage growth.

But while lower rates will likely attract more buyers, Bokhari added many homeowners likely won’t have a financial incentive to give up their comparatively low mortgage payments. If demand grows but supply doesn’t, he added, homes could get even more expensive next year.

“We have been punishing the potential buyers … in order to control inflation,” Bokhari said, “and the existing homeowners — they’re enjoying their lives.”

The challenge of buying a home could fall particularly hard on Black and Latino households, which generally have lower income than Asian American and white households. In 2023, 27% of listings nationwide were affordable for Asian American households, while 22% were affordable for white households, according to Redfin, based on the median household incomes for those groups. Those shares were 10% for Hispanic households and 7% for Black households.

Reach Christian Leonard: christian.leonard@sfchronicle.com