John Dealbreuin
Wealth of Geeks
According to the latest report from Redfin, the average household income falls about $30,000 short of what’s necessary to afford a median-priced home comfortably. Zillow published similar research that highlight the stark unaffordability of housing.
Zillow’s recent research sheds light on the reality facing today’s homebuyers; a significant shift in the financial landscape since 2020. To afford a home in the current market, individuals need to earn $47,000 more than they did just a few years ago. That adds up to a required annual income of more than $106,000.
Mortgage payments on a standard United States home have almost doubled in this time frame.
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Housing affordability worsens
In 2020, a household with an annual income of $59,000 could manage the monthly mortgage payments on a typical starter home. Following a 10% down payment, the family would allocate up to 30% of their income toward housing. Many Americans could achieve this, as it fell below the median U.S. income of approximately $66,000.
Today, the income needed to afford a home comfortably soars to roughly $106,500, surpassing the average U.S. household income of about $81,000.
Redfin’s recent research delves into housing and income statistics and mirrors these findings. Their analysis reveals the average U.S. household’s income is $30,000 below what is required to purchase a median-priced home. To afford such a home today, a buyer must earn $114,000 annually — approximately 35% more than the average American household earns.
While mortgage rates have slightly decreased from their highest points, offering a marginal increase in buying power, the dream of homeownership remains out of reach for many.
Buyers’ current median monthly housing costs are roughly $2,838, a 74% increase from February 2021, during historically low mortgage rates. To purchase the median-priced home in the U.S. in February, valued at $412,778, buyers were required to have an annual income of $113,520. This figure is 35% higher than the median household income of $84,072.
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Surging inflation fuels skyrocketing home prices
As prices of homes and other assets remain high, inflation is increasingly named a critical component behind the relentless rise. With sky-high costs across the board — goods, services, essentials, and luxuries — costly construction materials and labor are compounded by heightened demand in a supply-constrained market, pushing home and property prices to unprecedented levels.
To combat climbing costs, the Federal Reserve issued interest rate hikes. These strategies increased mortgage rates, placing additional financial strain on would-be homebuyers. Consequentially, monthly mortgage payments continue to outpace wage growth. This one-two punch of high inflation and unsustainable interest rates made the American dream’s promise of homeownership more elusive for many.
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Prices spike, income idles
Housing expenses are rising at double the income growth rate. To afford a median-priced home in the U.S., valued at $412,778 in February, buyers required an annual income of $113,520. This requirement stands 35% higher than the median household income of $84,072.
Additionally, the burdensome price tag attached to many essentials exacerbates the disparity between housing affordability and income. Stagnant salaries lag behind ever-increasing prices for everyday buys like groceries, whittling down Americans’ buying power.
According to the USDA, between 2019 and 2023, the Consumer Price Index (CPI) for all food items surged by 25.0 percent, while transportation costs experienced a 27.1 percent increase.
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Regional affordability discrepancies
In February, San Antonio’s prospective homebuyers saw affordability in their area increase by only 1%, marking the smallest rise among major U.S. cities, says Redfin. Marginal increases were also seen in Detroit (3%), Austin, TX (4%), Fort Worth, TX (5%), and San Francisco (6%).
Conversely, house hunters in Anaheim, California, witnessed the nation’s most significant home price surge, with buyers needing 20% more income than the previous year to afford a median-priced home. West Palm Beach, FL (18%), Fort Lauderdale, FL (18%), New Brunswick, NJ (18%), and San Diego (17%) followed closely.
As homeownership becomes a pipe dream in most places, residents in 13 major metros can still afford the average home with a household income below six figures. Detroit emerged as the most affordable market, as the typical household needed to earn $46,168 to afford the median-priced home. Cleveland followed closely ($58,186), with Pittsburgh ($61,603), St. Louis ($66,755), and Philadelphia ($73,182) next in line.
Other metros where homebuyers making less than $100,000 can afford the typical home include San Antonio, Texas, Virginia Beach, and Kansas City, Missouri. Midwesterners in Indianapolis, Indiana, Cincinnati, Ohio, Columbus, Ohio, and Milwaukee, Wisconsin also fare better than other buyers.
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Relocation prices out current residents
In response to rising housing costs in many cities, Americans relocate to more affordable locations. Consumers’ desire for enhanced quality of life and increased financial security lures consumers to regions with lower housing costs, favorable tax environments, and robust job markets.
The often modestly priced Midwest and Southeast areas pose potential to families hoping to stretch their income further. As remote work becomes commonplace, individuals and families find it easier to pursue moves without fear of forgoing career opportunities.
Real estate analysts from Florida Atlantic University aimed to identify cities with significant price disparities and compared historical housing market data to current list prices in the nation’s 100 largest metropolitan areas. The study utilized data from sources like Zillow and encompassed January 1996 to 2024. Analysts explored various property types, including single-family homes, townhomes, condominiums, and co-ops.
This research sheds light on long-term residents’ challenges as they find themselves increasingly priced out of their long-time neighborhoods amid escalating real estate costs. Historical data notes that Florida is home to five of the overall top 10 most unaffordable cities, but the August 2021 ranking shows none of Florida’s metros in the top 10.
Cheaper states, like Florida, pull Americans from high-cost states like California and New York. However, increases in demand as people flee high-cost areas in search of affordability propel once-modest prices higher.
This escalation makes home ownership a distant dream for many and raises questions about long-term affordability in the housing market. As inflation continues to shape the economic landscape, the dream of home ownership is increasingly becoming just that, challenging individuals and policymakers alike to adapt to this new reality of the housing market’s dynamics.
