HOUSING AFFORDABILITY
While the housing market has remained strong through the pandemic, thanks in large part to record-low mortgage rates, the share of homes sold that are affordable has decreased significantly, and the market is skewing toward higher-priced homes. The share of homes sold that are affordable fell below 30% shortly after the pandemic began, and has now remained below 20% since May of 2021, in comparison to shares above 36% almost every week in 2019.
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WHAT THE DATA IS TELLING US The sale of affordable homes (homes sold for less than $250,000) accounted for 24.6% of home sales in February; an increase of 0.9 percentage points from January. Though the share of affordable homes has been declining relatively consistently in recent years, data from the second and third quarters of 2021 has shown an accelerated decline below levels experienced in nearly 20 years, according to Minneapolis Area Realtors. February’s share is 5.2 percentage points lower than the share one year prior, and 19.7 percentage points lower than pre-COVID (2019) levels. The share of affordable homes remained between 25% and 30% for the majority of 2020 after the onset of the pandemic, and has remained below 20% for much of the spring and summer of 2021. This is a sharp decrease from 2019 and prior years, when the share of affordable homes accounted for between 36% and 50% of sales nearly every week of the year. In the first half of 2021, the share of affordable homes averaged 24%, and remained at least 13 percentage points lower than pre-COVID (2019) levels. The share of home sales under $250,000 has been shrinking steadily since 2012 as prices have risen and demand has outpaced supply. Since the global pandemic shifted the spring market into summer in 2020, this figure continued to decline into fall, though the share of more affordable home sales usually increases after June as seasonal demand cools down. According to Minneapolis Area REALTORS, this was partly the result of people seeking larger single family homes due to telecommuting, remote learning and health concerns. In 2021, strong demand for these properties has grown even stronger, but supply has not kept pace. The GREATER MSP partnership continues to monitor the state of housing affordability in our region closely, as this is a key component of regional economic competitiveness and inclusive economic growth. |
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This metric tracks the share of all home sales with final sale prices less than $250,000 in the specified week in the MSP region. Data is provided by the Minneapolis Area REALTORS® and sourced from the MLS database. Data is updated weekly. The data includes single-family, condo and townhome units, as well as new construction and existing/resale properties.
WHY THIS MATTERS TO ECONOMIC RECOVERY:
Housing affordability has been a growing concern and priority across large metropolitan areas nationwide for the last several years. Real estate is about 20% of the U.S. economy, and sales activity and other indicators are making new records across the metro. That said, not all areas or market segments follow this trend. The housing market was a primary cause of the last recession, but it’s helping to lead our way out of the current recession. Over 70% of Minnesotans own their home (one of the highest rates in the country), and homeownership is one of the best and surest paths to gain equity and wealth, as well as the flexibility and security associated with it. It’s vital for our regional economy and recovery to have a healthy supply of affordable options for residents and workers across the income spectrum, in order to support wealth creation, economic inclusion, and overall economic stability. Tracking access to affordable housing, particularly as businesses, workers, and residents struggle financially during the global pandemic, helps us understand the ability within our region not only to access basic needs like housing, but to build new equity and wealth necessary to financial wellbeing and economic stability.
RACIAL EQUITY AND INCLUSIVE RECOVERY:
Systemic racism in housing practices and policies have long excluded BIPOC communities and made it harder for these individuals to obtain mortgage loans and own homes in preferred geographic areas. The racial wage gap and employment gap in our region exacerbate the disparities in homeownership. Additionally, during the global pandemic, BIPOC communities, younger people and other vulnerable groups have been disproportionately impacted and are therefore less likely to move or purchase new homes. In fact, households that have experienced job or income loss are more likely to be priced out or will struggle to access and qualify for loans to gain access to the limited supply of affordable homes. Some existing homeowners experiencing economic impact from COVID19 may be forced to sell or take equity out of their home, and that will again disproportionately impact the most vulnerable and disadvantaged communities.
TELLING THE FULL STORY:
This measure of affordable housing includes MLS data only, so market activity occurring outside of the MLS isn’t captured. Additionally, “affordable” is a relative term defined differently across organizations and entities, and many would argue that home prices near $250,000 are not affordable. In order to fully understand the affordability of the available housing supply, other indicators to watch include seller and buyer activity, inventory, absorption rates, market times, the ratio of sold to list price, interest rates and the affordability index.
HOW TO LEARN MORE:
Minneapolis Area REALTORS tracks a wide array of real-time housing market information statistics and data.
MINNESOTA HOUSING has detailed an affordable housing plan for the state of Minnesota, and has published several reports on key issues and trends in housing and housing affordability.
The ITASCA PROJECT’s Housing Affordability Task Force report provides new and important insights as to why MSP must focus on housing affordability.
Want to share insights from the Regional Recovery Hub in your own presentations and materials? Download the Recovery Toolkit.