The typical household earns $29,448 less than it needs to afford the median-priced home, according to a new report from Redfin.
While that’s a sign of a major housing affordability crisis, it marks an improvement from October, when the typical household earned a record $40,810 less than it needed as mortgage rates hit the highest level in 23 years.
That’s based on a Redfin analysis of the estimated median household income and median monthly housing payments as of February.
Buyers needed to earn an annual income of $113,520 to afford the median-priced home in February ($412,778). That’s 35 percent more than the $84,072 median household income.
In October, when the mismatch between median income and the income needed to afford a home was highest, homebuyers needed to earn $120,500 to afford the typical home. That was a record 51 percent more than the $79,689 earned by the typical household.
February 2021 was the last month on record when the typical household earned more than it needed to afford the median priced home. Back then, the median household income was $69,021 — 6 percent higher than the $65,292 needed to afford the typical home.
“For over a decade, America has been slowly marching toward a housing affordability crisis due to chronic underbuilding, and that crisis was kicked into overdrive when the pandemic homebuying boom fueled a meteoric rise in housing prices,” Redfin Senior Economist Elijah de la Campa said in a release. “Now there’s another culprit squeezing homebuyers: elevated mortgage rates. We’re slowly climbing our way out of an affordability hole, but we have a long way to go. Rates have come down from their peak and are expected to fall again by the end of the year, which should make homebuying a little more affordable and incentivize buyers to come off the sidelines.”
Home sales fell to the lowest level in roughly three decades last year as elevated mortgage rates pushed homeownership out of reach for many Americans — especially first-time buyers, who haven’t built up equity from the sale of a previous home. Many Americans remain priced out of homeownership because rates remain elevated, and home prices continue climbing (they rose 7 percent year-over-year in February) due to a shortage of homes for sale.
The $113,520 income needed to afford the median priced home in February was up 12 percent from a year earlier — the biggest annual gain since August — and still wasn’t far below October’s all-time high. It was up 39 percent from February 2022 and up 74 percent from February 2021, when mortgage rates were near their all-time low of 2.65 percent.
Affordability is strained today because housing costs are rising much faster than incomes. The median household income has increased 6 percent over the last year, half as much as the income needed to afford the median-priced home.
The median monthly housing payment for homebuyers was $2,838 in February, down from a record high of $3,012 in October but up 12 percent year-over-year, according to Redfin.