In a challenging housing market, middle-class Americans are facing unprecedented financial hurdles. With home prices hitting record highs and mortgage rates around 7%, securing affordable housing has become increasingly difficult. A recent analysis by Zillow highlights that a middle-class worker now needs a $127,750 down payment, or 35.4% of the home's price, to afford the average U.S. home.
Before the pandemic, home prices were 50% lower and mortgage rates hovered around 4%, allowing buyers to afford homes with little to no down payment. Zillow's study, which aligns with economic advice to spend no more than 30% of monthly income on housing, underscores the significant changes in the market.
“Down payments have always been important, but even more so today,” stated Zillow Chief Economist Skylar Olsen. “With so few available, buyers may have to wait even longer for the right home to hit the market, especially now that buyers can afford less. Mortgage rate movements during that time could make the difference between affording that home and not.”
For a household earning the median annual income of $48,060, it would take approximately 12 years of saving 10% of their income to accumulate the necessary $127,750. Zillow's valuation places the typical U.S. home at $360,000, reflecting the significant financial burden on potential buyers.
The analysis also reveals a growing reliance on financial support from friends and family. Last year, 43% of first-time homebuyers received such assistance, up from 30% in 2018 before the pandemic.
Interestingly, the study shows that in ten major metropolitan areas, including Pittsburgh, homes are still affordable for median-income households with less than a 20% down payment. Conversely, in San Jose, California, the least affordable market, a staggering $1.3 million down payment is required. In Los Angeles, a median-income household would need to put down $780,203 to manage the monthly mortgage payments.
This data reflects the widening gap in housing affordability across different regions, emphasizing the need for prospective buyers to carefully plan and save for their home purchases.