The dream of owning a home in America has become significantly more expensive. Since 2020, income levels needed to comfortably afford a home have surged by 80%, outpacing the median income growth of 23% during the same period, according to a recent analysis by Zillow.
With the median U.S. home price now standing at approximately $343,000, prospective homeowners need an annual income of over $106,000 to manage mortgage payments without financial strain. This marks a stark contrast to January 2020 when a household earning $59,000 per year could comfortably afford the monthly mortgage on a typical U.S. home.
The shift in affordability metrics underscores the changing dynamics of the housing market. “Housing costs have soared over the past four years as drastic hikes in home prices, mortgage rates and rent growth far outpaced wage gains,” noted Orphe Divounguy, a senior economist at Zillow.
The typical monthly mortgage payment has nearly doubled since 2020, jumping from $1,114 to $2,188, assuming a 10% down payment. With mortgage rates now hovering around 6.6%, up from 3.5% in January 2020, the cost of homeownership has become prohibitive for many households.
This has led to alternative strategies for home buying. Many first-time homebuyers are now turning to friends and family for financial assistance, with half reporting that they received a gift or loan to help with their down payment. Additionally, millennials and Gen Z buyers are increasingly resorting to “house hacking” – renting out part of their homes to offset mortgage costs.
Despite the nationwide surge in prices, some markets remain relatively affordable. Pittsburgh, Memphis, and Cleveland top the list of cities where the necessary income to comfortably afford a home is the lowest, at $58,232, $69,976, and $70,810 respectively.
However, in seven major metropolitan areas, households need an income of $200,000 or more to comfortably afford a home. Four of these markets are in California: San Jose, San Francisco, Los Angeles, and San Diego, where required incomes range from $273,613 to $454,296. Seattle, New York City, and Boston also fall into this category, with necessary incomes ranging from $205,253 to $213,984.
The data highlights the widening affordability gap in the U.S. housing market. With home prices and mortgage rates continuing to outpace wage growth, it’s clear that the dream of homeownership is becoming increasingly elusive for many Americans. As Divounguy suggested, “the key to improving affordability long term is to build more homes,” but until then, house hacking and co-buying may become the new norm for aspiring homeowners.
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