Incomes Stagnate, Home Prices Soar: The Dilemma Of Affordable Housing

The growing chasm between household income and the escalating costs of homeownership underscores a pressing economic challenge many people face in achieving the American dream of owning a home.  

For the average U.S. household to afford the median-priced home, it needs to earn about $30,000 more than it does now, according to a recent report from real estate brokerage Redfin.

Although that's concerning, it's an improvement from October, when the typical household needed nearly $41,000 more income to buy a median-priced house, largely because mortgage rates hit their highest level in 23 years.

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To afford a home priced at $412,778 — the median price in February — buyers would need to make $113,510 annually, which is 35% more than the $84,072 median household income, according to Redfin.

The last time the typical household earned more than it needed to afford a median-priced home was in February 2021. At that time, the median household income of $69,021 was 6% 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. "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."

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In February, the $113,520 income required to afford a median-priced home was up 12% from a year ago — the most significant annual surge since August. The figure remained just shy of the all-time high recorded in October and was up 39% compared to February 2022 and 74% from February 2021 when mortgage rates hovered near their historic low of 2.65%.

Home sales dropped to their lowest level in about 30 years in 2023 as high mortgage rates put homeownership out of reach for many Americans — especially first-time buyers who don't have equity from the sale of a previous home.

"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," de la Campa said.

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