High mortgage rates and ever-increasing home prices have made it more difficult than ever to buy a home in the US, especially for first-time buyers. The average shopper must earn 15% more than a year ago – and wages are only rising by 5%.
A homebuyer needs to earn $114,627 to afford the average home in the US, up 15% ($15,285) from a year ago and more than 50% since the start of the pandemic. This is the highest annual income required to afford a registered dwelling.
That’s based on a recent report by real estate website Redfin comparing average monthly mortgage payments for home buyers in August 2023 and August 2022.
In order to buy a house, you have to allocate more money than a mortgage, given that you will not pay more than 30% of your income.
Housing costs are higher than ever due to high mortgage rates and rising home prices. The average interest rate for a 30-year fixed rate loan was 7.07% in August.
Mortgage rates have climbed even higher since then, reaching 7.57% on October 12 – their highest level in more than two decades. But even as rising mortgage rates have curbed demand, low home inventories are driving up prices. The median U.S. home sold for about $420,000 in August, up 3 percent year-over-year and just $12,000 short of the all-time high in mid-2022.
The monthly mortgage payment for a typical American borrower is an all-time high of $2,866. This is up 20% compared to a year ago, and – to add that – by that time payments had already increased significantly since the start of the pandemic. In August 2020, for example, the average half payment was $1,581, based on that month’s average mortgage interest rate (2.94%) and the average home price ($329,000). With these figures, at the time, in order to buy a home a worker would have to earn $75,000 a year to afford the home purchase.
The average American household earns about $40,000 less than the income needed to buy a median-priced home. Median household income was about $75,000 in 2022 in the most recent data.
Hourly wages have increased in 2023, but not at the same rate as mortgages. The average hourly wage in the US has increased by about 5% in the last year.
Affordability is less of an issue for cash buyers. The significant increase in income required to afford a property purchase hits first-time buyers the hardest. That’s because buyers who can afford to pay cash aren’t affected by high mortgage rates and likely earn more than the income needed to buy a home anyway.
Also, buyers who are selling a home to buy another start off better because they already have a first home equity, which gives some relief from the monthly payments.
In large metropolitan areas the largest increases
The income required to purchase a home has increased in all major metropolitan areas, with the largest increase in Miami and the smallest in Austin.
The areas where income needs to have risen the most are in both Miami and Newark, New Jersey, where homebuyers need to earn 33% more than a year ago to afford a mortgage – the largest percentage increase in large US urban areas.
Homebuyers in Miami need to earn $143,000 a year to be able to pay the $3,580 average monthly payment in the area, and buyers in Newark need to earn about $160,000 to afford the $3,989 average payment there.
Four other areas require income to have increased by more than 30%, and all are in the eastern half of the country: Bridgeport, Connecticut ($183,000), Dayton, Ohio ($60,000), Rochester, New York ($66,000) and Hartford, Connecticut ($95,000).
Income requirements have risen little in areas that have become hotspots amid the pandemic: Homebuyers in Austin, Texas, must earn $126,000 to buy an average home, 8% more than a year ago — the smallest increase since all major US urban areas. That’s despite Austin home prices falling 7% year-over-year in August after soaring during the pandemic as remote workers flocked. Salt Lake City, Fort Worth, Texas, and Lakeland, Florida follow, with annual growth of about 13 percent each. Home prices are down compared to a year ago in all of these areas.
Homebuyers must make six figures to buy a home in half of the nation’s major urban areas.
Buyers in the greater San Francisco Bay Area, in the most expensive markets – San Francisco and San Jose, California – must earn more than $400,000.
The next five most expensive areas are all in California: Anaheim ($300,000), Oakland ($250,000), San Diego ($241,000), Los Angeles ($237,000) and Oxnard ($233,000).
Buyers in the Rust Belt, the deindustrialized U.S., need the least income — but it’s still up from a year ago: Homebuyers in Detroit need to earn about 52,000 to afford the area’s median home price, up 19% from a year ago. Next are three Ohio cities (Akron, Dayton and Cleveland) and Little Rock, Arkansas, which require an annual income of about $60,000 to buy a home.
