A homebuyer must earn $114,627 to afford the median-priced U.S. home, up 15 percent ($15,285) from a year ago and up more than 50 percent since the start of the pandemic, according to a new report from Redfin.
That’s Redfin’s 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,” Redfin Economics Research Lead Chen Zhao said in a release. “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.
“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.”
Redfin added that housing costs are higher than ever because of the one-two punch of sky-high mortgage rates and rising home prices. The average rate on a 30-year fixed mortgage was 7.07 percent in August. Mortgage rates have climbed even higher since then, hitting 7.57 percent during the week ending Oct. 12—their highest level in over two decades.
But even though soaring mortgage rates have dampened demand, low inventory is causing home prices to increase. The typical U.S. home sold for about $420,000 in August, up 3 percent year-over-year and just about $12,000 shy of the all-time high hit in mid-2022.
The typical U.S. homebuyer’s monthly mortgage payment is $2,866, an all-time high. That’s up 20 percent from $2,395 a year earlier, and by that time payments had already increased substantially from the beginning of the pandemic, a time of ultra-low mortgage rates and yet-to-skyrocket home prices, according to Redfin.
In August 2020, the typical monthly payment was $1,581, based on that month’s average mortgage rate of 2.94 percent 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 typical American household earns about $40,000 less than the income needed to buy a median-priced home, Redfin said.
The median household income was roughly $75,000 in 2022, the most recent year for which annual income data is available. Hourly wages have risen in 2023, but not nearly as fast as the income necessary to afford a home is rising: The average U.S. hourly wage has increased by about 5 percent over the last year.