The progress that was made in providing mortgages to a higher percentage of low-income homebuyers during the pandemic years has been reversed in the past two years due to higher mortgage rates and rising home prices, a report from Redfin shows.
“There was a sweet spot in 2020 when mortgage rates were ultra low and home prices had yet to skyrocket, allowing some lower-income Americans to break into the housing market,” says Elijah de la Campa, senior economist for Redfin, in the report. “But somewhat ironically, the continued strength of the economy has made it harder to afford a home and widened the real-estate wealth gap between rich and poor Americans.
“The Fed’s interest-rate hikes, meant to help cool inflation and slow a hot economy, have pushed mortgage rates to near their highest level in more than two decades,” he adds. ”That’s on top of home prices, which skyrocketed during the pandemic buying boom and have stayed high due to a shortage of homes for sale.”
Roughly 1 in 5 of new mortgages went to low-income homebuyers in 2023, down from 23% in 2020, Redfin’s data show.
The drop brought that group’s piece of the home buying pie back down to where it was in 2018.
Meanwhile, high-income buyers have gained share because they’re more prepared to weather the storm of high home prices and mortgage rates.
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, Redfin says.
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%).
Photo: Annie Spratt