According to a new report by Redfin [1], a homebuyer must now earn an average salary of $115,627 in order to qualify for a mortgage on a typical American home—a number that is up 15% (or $15,285) year-over-year and up 50% from before the pandemic.
This represents the highest annual income necessary to afford a home on record.
“In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates—and that’s propping up prices,” said Redfin Economics Research Lead Chen Zhao [2]. “Buyers—particularly first-timers who are committed to getting into a home now—should think outside the box. Consider a condo or townhouse, which are less expensive than a single-family home, and/or consider moving to a more affordable part of the country, or a more affordable suburb.”
Housing costs are now at their highest levels ever due to two factors: mortgage rates and home prices. The typical U.S. home sold for about $420,000 in August, up 3% year over year and just about $12,000 shy of the all-time high hit in mid-2022 while mortgage rates hovered around the 7.5% mark.
The typical U.S. homebuyer’s monthly mortgage payment is $2,866, an all-time high. This number is up 20% from the $2,395 recorded at the same time last year. In August 2020, for instance, the typical monthly payment was $1,581, based on that month’s average mortgage rate of 2.94% and median home price of $329,000. At that time, a homebuyer would have needed to earn $75,000 per year to afford the typical home.
The bad news is that the average American homebuyer makes $40,000 less than the income needed to buy a median-priced home—the median household income in 2022 was $75,000. While hourly wages have risen in 2023, they have not increased enough, and fast enough, to afford a home.
First-time buyers are most likely to experience problems with the income gap: buyers who have already owned a home have equity to leverage and all-cash buyers do not have to qualify for a mortgage. The caveat to the caveat is those who bought at the height of the pandemic-era market with an ultra-low mortgage rate and need to sell now: Not only are they giving up a low rate, they also may have lost money on their home.
Other high-level data found by the report includes:
- Metros where necessary income has increased most: In both Miami and Newark, NJ, homebuyers must earn 33% more than a year ago to afford the typical home—the biggest percent increase of the major U.S. metros. Homebuyers in Miami need to earn $143,000 annually to afford the area’s typical monthly mortgage payment of $3,580, and Newark buyers need to earn roughly $160,000 to afford that area’s $3,989 payment.
- Other metros where necessary income has increased by over 30%: The income necessary to afford a median-priced home has increased by over 30% in four other metros, all in the eastern half of the country: Bridgeport, CT ($183,000); Dayton, OH ($60,000); Rochester, NY ($66,000); and Hartford, CT ($95,000).
- Buyers need to earn more in every major metro: Skyrocketing mortgage rates have caused the income necessary to buy a home to increase in every major metro, even the places where prices have declined over the last year.
- Necessary income has increased least in pandemic homebuying hotspots: Austin, TX homebuyers must earn $126,000 to afford the median-priced home, 8% more than a year ago—the smallest increase of all the major U.S. metros. That’s despite Austin home prices falling 7% year over year in August after they skyrocketed during the pandemic, with remote workers flocking in. Boise, ID, another pandemic homebuying hotspot where demand has since dropped, experienced the next-smallest increase: up 9% to $127,000. Salt Lake City, Fort Worth, TX and Lakeland, FL come next, with year-over-year increases of about 13% each. Home prices are down from a year ago in all those metros.
- Homebuyers must earn six figures to buy a home in half the major metros in the country: In 50 of the 100 metros in this analysis, buyers must earn at least $100,000 to afford the median-priced home in their area. Buyers must earn at least $50,000 everywhere in the country.
- Bay Area buyers must earn $400,000: Buyers in the most expensive markets in the country—San Francisco and San Jose, CA—must earn more than $400,000 to afford the median-priced home in their area, both up nearly 25% year over year. The next five metros are all in California: Anaheim ($300,000), Oakland ($250,000), San Diego ($241,000), Los Angeles ($237,000) and Oxnard ($233,000).
- Rust Belt buyers need the least income—but it’s still up from a year ago: Detroit homebuyers must earn about $52,000 to afford the area’s median-priced home, up 19% from a year ago. That’s the lowest income required to afford a home in the U.S. Next come three Ohio metros (Akron, Dayton and Cleveland) and Little Rock, AR, all of which require roughly $60,000 in annual income to buy a home.
Click here [3] to see the research in its entirety.