The pandemic killed the dream of middle-class homeownership

February 8, 2022, 12:30 PM UTC

The American dream used to be built around a strong middle class and homeownership.

Those two things don’t go hand in hand anymore, according to a new study by the National Association of Realtors, the trade association for the real estate industry. 

The problem is, basically, that everyone wants to buy, but there’s nothing available. A confluence of factors arising from the pandemic is to blame, and the shrinking middle class has a shrinking number of affordable homes to bid on.

Buying a home, especially for first-time homeowners, has been a nightmare for most of the pandemic. Low interest rates, supply-chain troubles, and a rising demand for homes all sent prices skyrocketing while the inventory of available houses on the market remains at a historic low.

Now the NAR study is breaking down just how bad it is—and it’s really bad.

The new study, released Monday, found that at the end of 2021, there were about 411,000 fewer homes on the market that were “affordable” for households earning between $75,000 and $100,000 than before the pandemic. To put that in perspective, at the end of 2019, there was one “affordable” listing for every 24 households in that income bracket, and it was one out of 65 by December 2021.

For middle-income prospective homeowners, the competition is fierce, as the share of listings affordable to buyers within this range dropped from 58% in 2019 to 51% now. 

Because of low inventory, the housing market becomes more of an ordeal the lower a household’s income is. The study identified the $50,000 to $75,000 income bracket as the hardest hit.

The most affordable city to buy a home for households earning $75,000 to $100,000 in 2022 was Deltona, Fla., at around one listing for every 31 households, still higher than the 2019 average number for the same income bracket, around one listing for every 24 households.

Many of the least affordable cities in the country were located in California, with San Jose taking top spot, quickly followed by coastal cities including San Francisco, Los Angeles, and San Diego.

The shrinking American middle class meets the pandemic’s great housing inventory crisis

The American middle class has been in an overall decline for decades, affecting the affordability of homes. The share of Americans in middle-income households has dropped from 61% in 1971 to 51% in 2019, according to Pew. 

Since 1989, the value of real estate wealth owned by the top 1% has grown by 772%, while the 50th through 90th income percentiles have grown by 359%, according to data from the Federal Reserve. This middle-income percentile had the slowest rate of growth of any on record, surpassed even by the bottom 50%.

Housing prices are now rising much faster than incomes, which has fueled an affordability crisis and locked many people out of the homebuying market.

The affordability crisis could not have come at a worse time, as many millennials and older Gen Zers are now entering their prime years to buy a first home.

The demand-side troubles of the current housing market may see some respite shortly. The Fed has signaled that it will raise interest rates soon, which may abate competition on the housing market and incentivize more buyers to pull back, lessening competition.

But hopes that the housing market would bounce back in 2022 are being dashed by the affordability crisis, as the issues that have caused the shortage seem to be going nowhere soon.

In Fannie Mae’s January housing forecast report, analysts at the government-sponsored organization predicted that costs will eventually start decelerating and the market will cool, but prices will remain higher than pre-pandemic times.

“We expect the narrative around housing this year to shift from one of extremely limited inventories leading to hypercompetitive bidding wars to one in which increasingly more would-be homebuyers are priced out of the market,” the report read.

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