The American housing market is facing significant challenges, as home prices have surged by 42% since 2020. A new study by Zillow reveals that escalating mortgage rates and borrowing costs are making homeownership increasingly unattainable for many.
Zillow's analysis highlights a growing affordability gap: prospective buyers now need to earn 80% more than they did four years ago to comfortably afford a home. Unfortunately, median incomes have only risen by 23% during this period.
"Incomes needed to purchase a home are just much, much higher than the typical household income," said Orphe Divounguy, chief economist at Zillow. "The increase in cost is pricing out many families that would like to get on the housing ladder."
In 2020, a household with an annual income of $59,000 could afford a typical home priced around $240,815, which was within reach for more than half of American households. Today, however, the landscape has shifted dramatically. To afford a median-priced home of $342,941, buyers now need an annual income of $106,000. This is $47,000 more than what was required in 2020 and well above the current average income of $81,000.
The past four years have seen home values and mortgage rates nearly double the monthly mortgage payment for the average U.S. homebuyer. Zillow reports that today's average monthly mortgage payment is 96% higher than in 2020. With a 10% down payment, this equates to an average monthly payment of $2,200.
This sharp increase is largely due to rising mortgage rates, which were around 3.5% in January 2020. This year, rates have fluctuated between 6.5% and 7%, placing additional financial strain on potential homebuyers.
As housing affordability continues to decline, many Americans are finding it increasingly difficult to achieve homeownership, highlighting the urgent need for solutions to address this growing crisis.