Published by REALTOR.com | July 16, 2024
The combination of high list prices and elevated mortgage rates means owning a home now costs nearly twice as much as it used to.
Scraping together enough money to buy a home can seem like a fruitless endeavor, especially in today’s housing market dominated by high mortgage rates and soaring list prices.
And it becomes even more daunting when the definition of “enough money” keeps increasing.
That’s exactly what’s happening across the country, where the gap between the income needed to purchase a median-priced home and the actual median household income reveals a broadening chasm that could be eroding the American dream.
Nationally, the scenario is grim: The combination of high list prices and elevated mortgage rates means owning a home now costs nearly twice as much as it used to.
Until early 2022, the minimum required income for a median-priced home was close to the median household income. We know that a median-priced home—around $385,000 at the time—would take a household income of about $79,000, using the Realtor.com® affordability calculator (where a ceiling of 30% of a household income is allocated toward housing costs).
That’s not far off from what the actual median household income was in 2022—around $75,000, according to the U.S. Census Bureau.
Comparing incomes with home prices is exactly how experts gauge the way buyers are increasingly priced out of the market, says Hannah Jones, a Realtor.com senior economic analyst.
“This is how we think about the affordability curve,” she explains. “How do incomes measure up against inventory?”
When mortgage interest rates were hiked in 2022, homeownership shot out of reach for the median household income. By June 2024, the required income had climbed to about $120,000. And with the median household income trailing at around $84,000, a small affordability gap suddenly became a staggering $36,000 deficit.
That means the minimum required income for a median-priced home is now more than 40% above actual median incomes.
Using standard affordability figures, where no more than 30% of household income should go toward housing costs, the combination of high prices and high mortgage rates puts required income for a median-priced home dramatically higher than median household incomes.
