That is an increase of over 5% from 2022.

The company defined the average household median around $70,000 each year.

And joining me now with more on this report is Chen Zhao.

She is the head of the economic research for Redfin.

Thanks so much for being with us.

Hi. Thanks for having me on.

So I want to start with asking what this report shows as factors that are driving this gap in affordability with the current real estate market the way that it is.

Yes, absolutely. So what we're finding is that about only about 16% of the homes that were available for sale in 2023 were affordable for the typical household and that's down from 21% in 2022.

But importantly, if you look before 2022, that fraction was around 40% or even higher. - Wow.

And what happened these last two years is that one: mortgage rates increased a lot.

So they increased from around 3% to a peak of about 8% in October and this was happening as the Fed was, you know, hiking interest rates to combat inflation.

And then the second factor is that home prices increased a lot during the pandemic around 40% or so,

and they actually stayed high even as mortgage rates were increasing a lot, which was unexpected.

And the reason for that was because there were so few homes for sale so prices stayed really high.

So Chen, we're expecting rates to drop next year, is that going to be a good sign for the market?

Oh, yes, absolutely. So we do think that 2023 will probably be the bottom for affordability, and we do see affordability improving in 2024 for two reasons.

One is that, as you said, mortgage rates are likely to ease a little bit.

The FED has made it really clear that they're pivoting from rate heights to rate cuts now.

So we do think that mortgage rates will come down a little bit in 2024 not a time, not down to the pandemic era rates, but a little bit and that'll help.

And we also think that home prices will come down a little bit, maybe 1% in 2024.

And that's because we think that, you know, existing homeowners will be increasingly listing their homes for sale.

So supply will come up a little bit in 2024, and that should help to bring down home prices just a little bit.

So if you're expecting home prices to go down, does that mean it's better to sell right away, if that's what you're hoping to do?

I think that if you are a seller, this is actually a pretty good time to list your home for a couple of reasons.

One, you know, prices might be coming down a little bit nationally, but, you know, I'm talking about a national average and, you know, the real estate market is very much local so, you know, conditions may differ a little bit, depending on where you are.

But secondly, there's not a lot of homes on the market right now, so if you are putting your home on the market, this is a good opportunity to be, you know, to not face a lot of competition.

Makes a lot of sense. Chen Zhao, thanks so much for your time. We appreciate this.

Thanks for having me on.