Home shoppers today need to make more than $106,000 to comfortably afford a home, a new Zillow analysis finds.
That is 80 percent more than in January 2020, showing how the math has changed for hopeful buyers who are more often partnering with friends and family or “house hacking” their way to homeownership.
In 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical U.S. home, spending no more than 30 percent of its income with a 10 percent down payment.
That was below the U.S. median income of about $66,000, meaning more than half of American households had the financial means to afford homeownership.
Now, the roughly $106,500 needed to comfortably afford a typical home is well above what a typical U.S. household earns each year, estimated at about $81,000, Zillow said.
“Housing costs have soared over the past four years as drastic hikes in home prices, mortgage rates and rent growth far outpaced wage gains,” Orphe Divounguy, a senior economist at Zillow, said in a release. “Buyers are getting creative to make a purchase pencil out, and long-distance movers are targeting less expensive and less competitive metros. Mortgage rates easing down has helped some, but the key to improving affordability long term is to build more homes.”
A monthly mortgage payment on a typical U.S. home has nearly doubled since January 2020, up 96.4 percent to $2,188 (assuming a 10 percent down payment). Home values have risen 42.4 percent in that time, with the typical U.S. home now worth about $343,000. Mortgage rates ended January 2020 near 3.5 percent, keeping the cost of a home affordable for most households that could manage the down payment. At the time of this analysis, mortgage rates were about 6.6 percent, according to Zillow.
For a household making the median income, it would take almost eight and a half years before they would have enough saved to put 10 percent down on a typical home, about a year longer than it would have in 2020.
With the cost of a mortgage rising, most millennial and Gen Z buyers say “house hacking” — the ability to rent out all or part of a home for extra cash — is very or extremely important. Co-buying with a friend or relative is another way to help with affordability, something 21 percent of last year's buyers reported doing.
Zillow data shows metro areas where a buyer could comfortably afford a typical home with the lowest income as Pittsburgh ($58,232 income needed to afford a home), Memphis, Tenn. ($69,976), Cleveland ($70,810), New Orleans ($74,048) and Birmingham, Ala. ($74,338).
The only major metros where a typical home is affordable to a household making the median income are Pittsburgh, St. Louis and Detroit.
There are seven markets among Zillow’s major metros where a household's income must be $200,000 or more to comfortably afford a typical home. The top four are in California: San Jose ($454,296), San Francisco ($339,864), Los Angeles ($279,250) and San Diego ($273,613).
Seattle ($213,984), the New York City metro area ($213,615) and Boston ($205,253) complete the list.