A surge in the US affordable housing supply is coming from people who can’t afford their homes

Restocking the US’ affordable housing market.
Restocking the US’ affordable housing market.
Image: REUTERS/Toby Melville
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More affordable housing is finally coming back onto the market. More low-priced homes were put up for sale in the third quarter of 2021 than any other segment, according to the latest housing report from real estate brokerage Redfin. Homes in the “most affordable” tier, which represents homes priced below 95% of others on the market, rose by 13% compared to a year prior. The affordable listings were up across the US, but the highest in cities across the Midwest and South.

Cheaper homes are hitting the market as people who can no longer afford to pay their mortgages put their homes up for sale. Emergency federal mortgage forbearance policy allowed those affected by the pandemic to temporarily pause mortgage payments. Once it ended this October, more people were forced to sell. This contributed to the total of 78,000 affordable homes on the market in the third quarter, a continued increase in supply that began in the second quarter of 2021.

Ending pandemic protections means some owners become renters

The emergency legislation the US federal government passed in response to the pandemic—first the CARES Act of March 2020, and then the American Rescue Plan Act a year later—prevented an eviction and foreclosure crisis. Policies temporarily suspended some financial obligations for people who had lost jobs and income during the pandemic. An eviction moratorium protected renters, while the CARES Act included protections for homeowners that allowed them to put mortgages into forbearance, halting payments for up to 18 months. The effect of this, according to a study published by the federal reserve in March of 2021, was to reduce the number of new homes being listed on the market. It created an extra cushion for the population of people who would otherwise have been forced to sell.

“People who may have lost their job or lost income could postpone the decision to sell their home and downsize to something more affordable or to take out their equity and start renting,” says Daryl Fairweather, chief economist at Redfin. “Now, those people have a very strong motivator to sell because they have to start making their monthly mortgage payments again.”

This will have long-term impacts on existing wealth disparities among Americans. Some people who sell go on to purchase different homes, but some of the thousands who sold their homes this quarter will move from being homeowners to renters. This means giving up building equity in a property; the primary way that low and middle-income Americans build wealth. This dynamic is more likely to affect Black Americans, whose homeownership rate has declined during the pandemic, further widening the racial wealth gap between Black and white Americans.

A rebalanced market, not a foreclosure crisis

Still, Fairweather says that this dynamic won’t lead to a foreclosure crisis, because rising home values across the board means that even those selling the lowest-priced homes are walking away with a profit. The pandemic-triggered housing boom in the US saw average prices rise 13.2% over the last year.

The larger supply of homes at the cheaper end of the spectrum can relieve pressure on prices and create an opportunity for more people to buy. That means more balance between demand and supply across the housing market in the next year, and less intense competition for homes, says Fairweather.

“I think next year a lot of the people who are just now starting to get back to work are going to be thinking about buying a home again. The increase in supply for affordable listings is coming at a good time for those people getting back on their feet who would want to buy those homes.”