Five years ago, a median-income household could afford a typical home. Today, even with $73,000 saved for a down payment, they’re more than $17,000 short, according to Zillow.
“Affordability remains a steep hill to climb, especially for first-time buyers,” Zillow Senior Economist Kara Ng said. “While the financial bar has gotten higher, we’re also in the middle of the most buyer-friendly spring since before the pandemic for those who can make the finances work. Inventory is up, prices are softening, and sellers are negotiating. To make homeownership more broadly accessible, though, we need lasting solutions, starting with policies that allow more homes to be built in the right places.”
To comfortably afford a typical home worth $367,969, a buyer needs to earn nearly $100,000 a year, assuming they have $73,594 saved for a 20 percent down payment. That means a household making the median income would need a $17,670 raise. If that same household only had enough for a 10 percent down payment, they’d need a pay increase of $36,287.
In four California markets, median earners would need six-figure raises to afford a typical home. Even with $330,000 saved for a 20 percent down payment, a median-income household in San Jose would need a raise of more than $250,000. Median-income households would also need six-figure raises in San Francisco ($165,566), Los Angeles ($149,375) and San Diego ($128,954).
There are 11 major markets where the median income is enough to afford the typical mortgage payment, down from 39 five years ago, according to Zillow. Median earners in Cleveland are making $11,588 more than what’s needed to afford the typical home, followed by Pittsburgh ($11,244), St. Louis ($4,897) and Cincinnati ($4,396).
As affordability headwinds have stiffened for first-time buyers, demand for single-family rentals has been rising. Such homes now rent for 41 percent more than five years ago, compared with 30 percent growth for multifamily units.
To come up with a down payment, more than half of buyers are tapping at least two sources. The most common sources are savings (72 percent of buyers), the sale of a previous home (46 percent) and a gift or loan from family or friends (38 percent).