As housing costs surge, Americans find themselves in a tightening financial bind, with the dream of homeownership slipping further out of reach. According to a recent analysis by real estate site Redfin, the typical household in the U.S. now needs to earn $113,520 annually to afford a median-priced home, a staggering 35% more than the average household income of $84,072.
"Since the pandemic, affordability has just totally collapsed," remarked Chen Zhao, a senior economist at Redfin, highlighting the severity of the situation.
February 2021 marked the last month when the average household income surpassed the amount needed to afford a median home. "That deficit hit a peak in October of 2023," Zhao added. "The reason why it hit a peak then is because that’s when mortgage rates peaked as well."
Despite a slight narrowing of the affordability gap in February, with households falling short by $29,448 compared to $40,810 in October 2023, challenges persist. Mortgage rates have declined since October, but seasonal pricing fluctuations and a scarcity of starter homes compound the issue.
Veronica Fuentes, a certified financial planner, observes hesitancy among potential buyers, many of whom are reevaluating their financial security in light of recent layoffs and economic uncertainty.
"If you were laid off, could you still afford this mortgage? Do you have six months [of] emergency savings or even a year [of] emergency savings? ... Can you still afford the mortgage for six months if you have no job?" Fuentes said.
"In a time when a potential buyer needs to earn about $114,000 a year to afford a median-priced house in the U.S., a starter home would make the most sense for price-sensitive buyers," suggests Zhao. However, starter homes are increasingly scarce, as builders have shifted away from constructing entry-level properties in recent years.
While affordability varies across different markets, with some cities like Detroit offering more accessible housing options, experts caution that the broader outlook remains uncertain. While borrowing costs may decrease and inventory increases, the fundamental challenges of affordability are unlikely to vanish entirely.
"Conditions probably aren’t going to get significantly better," advises housing analyst Jeff Ostrowski, urging potential buyers to act decisively if they can afford to do so.
As Americans navigate the tumultuous landscape of the housing market, the path to homeownership remains fraught with financial hurdles, underscoring the urgent need for sustainable solutions to address the affordability crisis.