Americans now need to earn at least $76,000 per year to afford a basic home in the U.S., as stated by Redfin, which is a significant increase from the previous income recommendation required for homeownership prior to the pandemic. Only four years ago, individuals earning around $40,500 annually could afford a typical starter house, but due to rising mortgage rates and record high home prices, the cost has now surpassed the means of many Americans. Redfin’s Senior Economist Elijah de la Campa noted that the definition of a starter home has changed, with prices for such homes reaching seven figures in expensive parts of the country.
The typical full-time worker in the U.S. earns approximately $1,145 per week, equating to roughly $66,000 annually based on government labor data. Redfin considers a home affordable if the buyer does not spend more than 30% of their income on housing, assuming a 3.5% down payment. Starter homes are typically smaller and more modestly priced dwellings that enable first-time buyers to enter homeownership. However, many of these properties are in poor physical condition and require significant work to make them habitable, driving up costs even further.
In February, the median sale price of a typical starter home was $240,000, representing a 3.4% increase from the previous year, according to Redfin. In contrast, the median sale price in February of 2020 was $169,000, with an average mortgage rate of around 3.5%. Currently, rates for a conventional 30-year loan are at 6.87%, while the median home price as of February stood at $384,000, according to the National Association of Realtors. With a limited supply of affordable homes on the market, first-time buyers also face competition from a growing number of all-cash offers, making it even more challenging to enter the real estate market.
The disparity in housing affordability varies greatly across the U.S., with some cities being more affordable than others. For instance, residents in San Jose need an annual income of approximately $319,000 to afford a home, while in Detroit, earnings of $22,000 are sufficient. Beyond starter homes, the affordability threshold rises even higher for the average buyer, with Americans needing to earn around $106,500 in order to comfortably afford a typical home, as per research from digital real estate company Zillow. These trends indicate the challenging landscape for aspiring homeowners in the current real estate market.
In conclusion, the housing market in the U.S. has seen a significant shift in affordability requirements for prospective homebuyers, with the income needed to purchase a basic home rising to $76,000 per year. Rising mortgage rates and record high home prices have made homeownership increasingly out of reach for many Americans, especially first-time buyers looking for starter homes. With a limited supply of affordable properties and increasing competition from all-cash offers, the challenges of entering the real estate market continue to mount. Across different cities, the income needed to afford a home varies significantly, highlighting the disparities in housing affordability across the country. These trends underscore the importance of addressing the affordability crisis in the housing market in order to ensure that all individuals have access to safe and secure housing options.
