Middle-income buyers—classified as households earning up to $75,000— were once strong homebuying candidates with income to spare. Just five years ago, this group could afford to buy half of all available homes on the market.
Now, they can afford just 23% of listings, according to an analysis from the National Association of Realtors (NAR) and Realtor.com. The housing market needs about 320,000 mid-tier listings to make up for demand.
Middle-income buyers can on average afford a home valued up to $256,000, but very few are available. Among the 100 biggest metros, El Paso, Boise, and Spokane, WA, have the fewest affordable homes for this group. Ohio leads the way with the most, in Youngstown, Akron, and Toledo.
“Middle-income buyers face the largest shortage of homes among all income groups, making it even harder for them to build wealth through homeownership,” said Nadia Evangelou, NAR senior economist and director of real estate research.
Though home prices are moderating overall, this is mostly due to the most expensive homes on the market seeing major price cuts. Prices within the affordable range remain elevated due to increased demand.
Homes priced under $500,000 are “flying off the market,” a Redfin real estate agent noted, and multiple offers that bump up the final price are common.
Evangelou said that solving the problem will require a two-fold approach targeting both low affordability and the stock shortage.
“It’s not just about increasing supply. We must boost the number of homes at the price range that most people can afford to buy,” she said.
One problem is the lack of construction of small, inexpensive homes that could be reasonably sold for cheap. Increasing land and material prices – combined with picky community rules requiring things like two-car garages or homes of a certain size – have made it impossible to build a small, bare-bones house that could sell for $200,000 or less.
The American ideal of a large home on a spacious plot of land is another issue. Homes under 1,400 square feet have only made up 8% of new construction since 1999, in part due to an assumption that homebuyers won’t buy small houses. Neighborhoods that were formerly densely populated are having fewer, but bigger, homes built.
“The development industry still thinks that people want big, and they’re in a state of denial and don’t want to change their business model,” Dan Parolek, an architect and founding principal with the Berkeley, California-based firm Opticos, told Curbed.
“We see a tremendous market untapped for high-quality small units, and very few builders see that.”