Homebuyers Need to Earn 80 Percent More
Home prices are up 42% since 2020, but because both rates and borrowing costs have skyrocketed, you need to earn 80% more to comfortably afford a home in today’s market. Median incomes have risen just 23% over the past four years, leaving many people out of the running for homeownership. In 2020, a household earning $59,000 a year could afford a typical home priced at about $240,815. At the time, that income level was less than the US median income of $66,000, meaning more than half of American households had sufficient cash flow to purchase a home without overextending their budgets. Today, those shopping for a home need to earn $106,000 annually to afford a median-priced home for $342,941. That’s $47,000 more than they needed to earn in 2020 to afford a home and well above today’s average income of $81,000. Barely a handful of major metros evaluated were affordable at the median income. The real estate firm defines affordability as spending no more than 30% of your income after offering a 10% down payment. As home values and mortgage rates have climbed, the monthly mortgage payment on a typical US home nearly doubled over the past four years. In fact, today’s typical buyer would be facing a monthly mortgage payment that was 96% higher compared to 2020 levels. That’s an average payment of $2,200 a month, with a 10% down payment. The main difference is that mortgage rates ended January 2020 near 3.5%. So far this year, rates have hovered between 6.5% and 7%. The dramatic uptick in both rates and home prices has put would-be buyers in a tough spot. Particularly, home values have been outpacing wage growth for over a year now. So far, neither mortgage rates nor home prices have shown signs of easing anytime soon. Rates have surged above 7%. Zillow forecasts home prices to increase by 0.9% over 2024 to an average of $349,611. Traditional measures of affordability are at 30-year lows, and that will impact the age of first-time homebuyers. The average age of entry-level buyers moved up to 36, from 31 just five years ago. Out of the 50 US markets, only three major metros were affordable to those making an average income of $81,000: Pittsburgh, St. Louis, and Detroit. By contrast, there are seven markets among major metros where would-be buyers need to earn $200,000 or more to afford a typical home. The top four were all in California — with San Jose taking the lead at ($454,296), followed by San Francisco ($330,864), Los Angeles ($279,250), and San Diego ($273,613). Next came Seattle ($213,984), followed by New York City ($213,615), and Boston ($205,253).
