Single-family home prices have been on a meteoric rise since 2020, making the dream of homeownership much less feasible for many first-time homebuyers.
Home shoppers need an annual income of $106,000Â to comfortably afford a home in the United States, marking a roughly 80% increase from the $59,000 required four years prior, according to a new study by Zillow.
Not only do U.S. home buyers need to earn roughly $47,000 more than in 2020, but they also need to account for higher mortgage rates.
Since 2020, the average 30-year fixed mortgage rate has nearly doubled, jumping from 3.5% in February 2020 to around 7% in February 2024, according to data from Mortgage News Daily.
According to the latest U.S. Census Bureau data, the median household income in the United States was $74,580 in 2022. This means the vast majority of today’s homebuyers fall well short of the $106,000 annual income needed to afford a typical mortgage and still live comfortably.
For example, the study notes that if a family made a 10% down payment on a home in 2020 and allotted no more than 30% of the household’s income to the mortgage, a typical homeowner would only need to earn an annual income of $59,000 to live comfortably.
Since the U.S. median income was $66,000 in 2020, more than half of American households had the financial means to afford a home.
However, flash forward to today and the roughly $106,000 needed to comfortably afford a home is substantially higher than what a typical U.S. household earns yearly, which Zillow estimates is about $81,000 in 2024.
Housing affordability is even worse locally. According to Zillow, the average home value in Dallas was $307,990 in February 2024. Compared to a median income of $75,000 nationally, the median household income in Dallas is about 14% less, or $63,985, based on the latest Census data.
“Housing costs have soared over the past four years as drastic hikes in home prices, mortgage rates, and rent growth far outpaced wage gains,” said Zillow senior economist Orphe Divounguy in a news release.
Despite today’s homebuyers needing to earn 80% more income to afford a mortgage, the median income for Americans has failed to keep pace, rising just 23% during that same time.
If an average household earned the median U.S. income, Zillow notes that it would take almost 8.4 years to save up for a 10% down payment, about a year longer than it would have in 2020. Overall, Divounguy said buyers have had to get creative with homeownership.
As a testimony to the local situation, he said long-distance movers have been targeting less expensive and less competitive regions than in-demand metros like Dallas-Fort Worth.
While Divounguy said he believes housing affordability will eventually improve as mortgage rates ease, he noted that the key to improving affordability over the long haul is for developers to “build more homes.”
