Rising mortgage rates and soaring home prices over the past two years have caused the housing market to decline in affordability more rapidly than in modern history, hitting first-time homebuyers the hardest.
Homebuyers need to earn $114,627 to buy a median-priced home in the U.S., an increase of 15% ($15,285) from a year ago and since the start of the pandemic in early 2022. increased by more than 50%. This is the maximum annual income required to purchase a home. On record. Meanwhile, wages have only increased by 5% since 2022.
To conduct this analysis, Redfin compared the median monthly mortgage payments for homebuyers in August 2023 and August 2022.
On Thursday, 30-year fixed-rate mortgage rates crossed the 8% threshold, according to Mortgage News Daily. As of March 2022, the average interest rate for a 30-year fixed-rate mortgage was 3.56%.
Meanwhile, the median U.S. home price in August was $420,000, an increase of 3% compared to August 2022. The median sales price at the start of the pandemic was $260,062.
In the latest September existing home sales report, median prices remain 2.8% higher than in September 2022. On a monthly basis, the average U.S. buyer’s payment remains around $2,866, an all-time high, according to Redfin.
Of course, high mortgage rates and home prices won’t hurt all-cash buyers or advance buyers as much.
In terms of metropolitan-level inequality, Miami’s quintessential “Zoomtown” has seen the largest increase in the income required to buy a median-priced home. Interestingly, Austin, another Zoom town, was the indicator that saw the smallest increase.
Subway breakdown
In both the Miami metropolitan area and the Newark metropolitan area, homebuyers will need an income 33% higher than in 2022 to afford the U.S. median-priced home. For example, a home buyer in Miami currently needs to earn $143,000 to pay a $3,580 monthly mortgage. In Newark, buyers will need $160,000.
Bridgeport, Conn., Dayton, Ohio, Rochester, N.Y., and Hartford, Conn., also saw their required revenue increase by more than 30%. However, Austin was the place where the income needed to buy a home increased the least, at just 8%. Currently, homebuyers need an income of $126,000 to purchase a median-priced home in Austin. Meanwhile, buyers in San Francisco and San Jose, the most expensive markets in the country, must earn more than $400,000 to afford the area’s median-priced home.
Inventory remains one of the drivers of this difficult housing market. According to another study, red fin2023 is expected to end with approximately 4.1 million existing homes sold nationwide, which will be the lowest number since the housing bubble burst in 2008.
In the latest economic commentary from Fannie Mae’s Economic Strategic Research (ESR) Group, Doug Duncan, Fannie Mae’s senior vice president and chief economist, said he does not expect affordability issues to ease in 2024. He said he did not.
“We expect the rising mortgage rate environment to continue to dampen housing activity through 2024, further complicating housing affordability,” Duncan said.
