Home Affordability Challenges Persist Despite Rising Incomes

Recent data reveals a significant disparity between the surge in home prices, which have increased by 42% since 2020, and the more modest 23% increase in median incomes over the same period. This disparity has made homeownership increasingly unattainable for many Americans, with the income needed to afford a median-priced home now at $106,000 annually, up from $59,000 in 2020.

The affordability crisis is further compounded by the sharp rise in mortgage rates, which have nearly doubled since 2020. Currently, the typical monthly mortgage payment on a median-priced home stands at $2,200, representing a 96% increase from 2020 levels. Despite efforts to expand mortgage relief programs, many households are struggling to save for a down payment, with the average age of first-time homebuyers rising to 36.

The pressure of affordability has also led to delayed homeownership for many younger buyers, with the average age of entry-level buyers increasing from 31 to 36 over the past five years. To save up for a down payment, more buyers are resorting to “house hacking” or renting out part of a home. Additionally, 21% of buyers who purchased homes last year reported receiving financial help from friends or family, highlighting the challenges faced by prospective homeowners in today’s market.

Even in the most affordable metropolitan areas, buyers need to earn more in 2024 to comfortably purchase a home. For example, in Pittsburgh, the most affordable metro area, buyers need an average household income of at least $58,232 to purchase a median-priced home. In contrast, in markets like San Jose, San Francisco, and Los Angeles, buyers need to earn $200,000 or more to afford a typical home, underscoring the widening gap between home prices and incomes in many major metro areas.

“In this environment, buyers should really get their finances in order first,” said Orphe Divounguy, chief economist at Zillow. “You’ll want to start the search process early, get your credit right, and that can save you thousands over the course of the loan.”