Housing shortage worse for middle-income buyers

Middle-income buyers are facing the largest gap between the number of homes actually for sale and what normally should be on the market. Only 23% of those currently listed are affordable for households that make $75,000 or less.

That translates to approximately 320,000 properties valued up to $256,000 missing from the market, a report from the National Association of Realtors and Realtor.com (a website operated by News Corp.) found.

Approximately 1.1 million homes were on the market at the end of April but just 262,580 could be purchased by those in middle-income households, a group that makes up slightly more than half of the U.S. population.

The gap is determined by what would be the supply if the housing market was at the equilibrium point, when half of all available homes for sale were in the price range affordable for middle-income buyers. Based on that, the middle-income households could have purchased nearly half of available homes five years ago.

In other terms, the equilibrium gap for households earning $75,000 is 28 percentage points (51% in a balanced market versus the 23% actual). For households making $200,000, that gap is approximately 12 percentage points (88.7% versus 77.2%).

"A two-fold approach is needed to help with both low affordability and limited housing supply," said Nadia Evangelou, NAR senior economist and director of real estate research, in a press release.

It's not just about simply increasing the inventory of homes for sale, "we must boost the number of homes at the price range that most people can afford to buy," Evangelou continued.

In a balanced market, 11% of homes for sale should be priced at $680,000 or more; at the end of April, it was more than twice this, at 23%. In fact, more than three-quarters of the listings were over that $256,000 price point, where it should be under 50%.

"It's likely keeping some buyers in the rental market or on the sidelines and delaying their purchase until conditions improve," said Realtor.com Chief Economist Danielle Hale. "Those who are able to overcome affordability constraints may be increasingly drawn to newly constructed homes or to the suburbs and beyond."

Black families in particular are affected by this phenomena. Two-thirds of Black households earn $75,000 or less, while for whites it is just 40%.

"Thus, Black Americans would need 20% more listings with a value of up to $256,000 than their white counterparts in order to be at equilibrium," the report said. Hispanic households are also affected, as they need 11% more listings at this price than whites.

"Even with the current level of listings, the housing affordability and shortage issues wouldn't be so severe if there were enough homes for all price ranges," Evangelou added. "Our country needs to add at least two affordable homes for middle-income buyers for every home listed for upper-income buyers."