High Rates Push Typical U.S. Home Affordability Threshold to $115,000 in 2023

Rising Mortgage Rates Drive U.S. Home Affordability Threshold to Record High

As mortgage rates continue to climb, the income required to afford a median-priced home in the United States has surged to unprecedented levels. According to the latest data from Redfin, prospective homebuyers must now earn $114,627 annually to comfortably afford a typical home, marking a staggering 15% increase of $15,285 compared to a year ago.

This figure represents a more than 50% surge since the onset of the pandemic, reaching the highest threshold ever recorded for home affordability.

Redfin Economics Research Lead Chen Zhao commented on the current situation, stating, “In a homebuyer’s ideal world, rising mortgage rates would push demand and home prices down enough to make up for high interest payments. But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates–and that’s propping up prices.”

The combination of soaring mortgage rates and escalating home prices has intensified housing costs to unprecedented levels. With the average rate on a 30-year fixed mortgage reaching 7.07% in August and climbing even higher in subsequent months, prospective buyers are facing significant financial hurdles.

Despite the dampened demand resulting from soaring mortgage rates, the persistently low inventory is fueling further price hikes. In August, the median U.S. home sold for approximately $420,000, marking a 3% increase year-over-year.

The financial strain on homebuyers is evident in the surge of monthly mortgage payments, which have reached an all-time high of $2,866. This represents a 20% increase from the previous year, and a stark contrast from the early pandemic period when rates were exceptionally low.

Even with hourly wages rising, the disparity between household incomes and the income required to afford a home continues to widen. The typical American household, with a median income of approximately $75,000 in 2022, falls short by about $40,000 of the income needed to purchase a median-priced home.

While affordability remains a significant challenge for first-time buyers, all-cash and move-up buyers are less affected. Cash buyers are shielded from the impact of high mortgage rates, while move-up buyers can leverage equity from their existing homes to mitigate the impact of soaring monthly payments.

However, those who entered the market during the peak of the pandemic may face additional challenges, potentially experiencing losses on their homes due to the current market conditions.

Rising Home Prices Push Income Requirements to New Heights Across U.S. Metros

The latest data from Redfin reveals a significant surge in the income required to afford a median-priced home in major U.S. metropolitan areas, driven primarily by skyrocketing mortgage rates and escalating home prices. Here are the key highlights from metro-level analysis:

Miami and Newark Lead the Surge: In Miami and Newark, NJ, prospective homebuyers now need to earn 33% more than a year ago to afford the typical home—a record increase among major U.S. metros. In Miami, the necessary income stands at $143,000 annually to cover the area’s average monthly mortgage payment of $3,580, while in Newark, buyers require roughly $160,000 to afford the $3,989 payment.

Other Metros with Significant Increases: The income necessary to afford a median-priced home has surged by over 30% in four additional metros, all located in the eastern half of the country: Bridgeport, CT ($183,000); Dayton, OH ($60,000); Rochester, NY ($66,000); and Hartford, CT ($95,000).

Across-the-Board Increase: Skyrocketing mortgage rates have led to an increase in the income required to buy a home in every major metro, even in areas where home prices have declined over the past year.

Least Increase in Pandemic Hotspots: In pandemic hotspots like Austin, TX, and Boise, ID, where demand surged during the pandemic but has since tapered off, the increase in necessary income has been relatively small. Austin homebuyers now need to earn $126,000 (up 8% from a year ago), while in Boise, the required income is $127,000 (up 9%).

Six Figures Required in Half of Major Metros: In 50 of the 100 metros analyzed, buyers must earn at least $100,000 to afford the median-priced home. Across the country, a minimum income of $50,000 is required in all areas.

Bay Area Tops Income Requirements: Buyers in the Bay Area, particularly in San Francisco and San Jose, CA, face the highest income requirements, exceeding $400,000 annually. This represents a nearly 25% increase from the previous year. Other California metros follow suit, with Anaheim ($300,000), Oakland ($250,000), San Diego ($241,000), Los Angeles ($237,000), and Oxnard ($233,000) requiring substantial incomes to afford median-priced homes.

Rust Belt Shows Moderate Increase: While income requirements in Rust Belt cities like Detroit have risen—Detroit buyers now need about $52,000 annually, up 19% from the previous year—the figures remain comparatively lower than those in coastal metros. Other Rust Belt metros such as Akron, Dayton, and Cleveland, as well as Little Rock, AR, also show moderate increases, with required annual incomes hovering around $60,000.

Clare Trapasso
Clare Trapasso
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