Reality Check: Owning A Home In The US Now Demands A Six-Figure Salary

The housing market has witnessed an unprecedented surge over the past three years, causing an affordability crisis across the U.S. While the ultra-low interest rates during the COVID-19 era initially sparked demand, the housing sector remained resilient throughout aggressive rate hikes over the past year. 

While the Federal Reserve easing its stance over the past two months has caused mortgage rates to come down slightly, home prices remain high. This comes as mortgage demand rose to a five-week high amid the slight dip in the 30-year fixed mortgage rate in mid-November. 

"Despite the recent downward trend, mortgage rates at current levels are still challenging for many prospective homebuyers and current homeowners," Mortgage Bankers Association Vice President and Deputy Chief Economist Joel Kan said. 

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Skyrocketing Home Prices: Unaffordability At Its Peak 

Purchasing a home has become more challenging for Americans than ever before, as average home prices skyrocket past the $400,000 mark. 

In August, the average selling price of a U.S. home was approximately $420,000, reflecting a 3% year-over-year rise. This is just $12,000 below the all-time high median home prices recorded in mid-2022, according to a recent report published by Redfin. 

Prospective homebuyers must earn at least $114,627 to afford a median-priced house in the country. This number isn't surprising, as the median monthly mortgage payment currently stands at an all-time high of $2,866, up by over 20% year over year. Average monthly mortgage payments stood at approximately $2,395 as of August 2022 and $1,581 in August 2020. 

To afford an average home in the U.S., a prospective homeowner must have an income of $114,627, reflecting a 15% or $15,285 increase from the previous year and a more than 50% surge since the beginning of the pandemic. This marks the highest annual income requirement to purchase a home.

The crisis is even worse in metropolitan cities across the country, as a median income of over $200,000 is required to buy a house in the top 10 hotspots in the U.S.

Lagging Wage Growth 

Wages have not risen at the same pace, sparking an unaffordability crisis nationwide. The average household income after adjusting for inflation stood at $74,580, down 2.1% year over year. 

Median wages have risen by only 5% year over year in 2023, according to data from the Federal Reserve Bank of Atlanta. This lags the 10% rise in median home prices over the same period, exacerbating the housing deficit. 

"In a homebuyer's ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. 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," said Chen Zhao, leader of Redfin's economics research team. 

First-Time Homebuyers Facing The Brunt 

First-time homebuyers are the most impacted by the worsening housing market conditions, as low supply and high mortgage rates keep home prices elevated. The primary surge in income required to purchase a home disproportionately affects such people, who are typically younger and have less accumulated wealth. 

People who plan on upsizing their houses are also in a better position, as rising home prices have allowed them to build wealth, softening the blow from rising mortgage payments. 

First-time homebuyers accounted for 27% of total home sales in September, down by two percentage points from August, according to the Realtors Confidence Index survey. This is significantly lower than the median 40% share typically held by first-time homebuyers in the past. 

"Seeing it at 27% speaks to the affordability and inventory challenges first-time homebuyers are facing," said Jessica Lautz, deputy chief economist for the National Association of Realtors. 

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