The picture is bleak—housing is severely unaffordable. Your typical American household makes almost $30,000 less than it needs to afford a median-priced home, according to Redfin.
But how did we get here? Well, it sort of began with the pandemic. People were working from home and mortgage rates were historically low, so it fueled a housing boom. Home prices and rents went up substantially. But halfway through 2022 that began to change, and the Federal Reserve raised interest rates in an attempt to lower high inflation, so mortgage rates went up.
“For over a decade, America has been slowly marching toward a housing affordability crisis due to chronic underbuilding, and that crisis was kicked into overdrive when the pandemic homebuying boom fueled a meteoric rise in housing prices,” a Redfin senior economist said in a new analysis. “Now there’s another culprit squeezing homebuyers: elevated mortgage rates.”
Presently, would-be buyers need to earn an annual income of almost $114,000 to afford the median-priced home, as of last month. In February, the median-priced home was nearly $413,000, according to Redfin. That needed income of nearly $114,000 is 35% higher than the roughly $84,000 median household income across the country, the authors wrote.
Three years ago, in February of 2021, a typical household earned almost $4,000 more than the amount needed to afford a median-priced home, according to Redfin. That’s the last month on record when the normal household made more than needed to afford a typical home, so just consider how much things have changed, and how dire the situation has become. “Back then, the median household income was $69,021—6% higher than the $65,292 needed to afford the typical home,” the analysis said.
October of last year was the least affordable month within the housing market in decades, when mortgage rates reached 8%, and home prices were still high. While Redfin’s latest analysis “is a sign of a major housing affordability crisis, it marks an improvement from October, when the typical household earned a record $40,810 less than it needed as mortgage rates hit the highest level in 23 years,” the authors wrote.
“In October, when the mismatch between median income and the income needed to afford a home was highest, homebuyers needed to earn $120,500 to afford the typical home,” the authors continued. “That was a record 51% more than the $79,689 earned by the typical household.”
Things have improved slightly. The average 30-year fixed mortgage rate is 6.92%, as of the latest reading, and the gap between incomes and home prices, though still substantial, has shrunk. “We’re slowly climbing our way out of an affordability hole, but we have a long way to go,” the senior economist, Elijah de la Campa, said. “Rates have come down from their peak, and are expected to fall again by the end of the year, which should make homebuying a little more affordable and incentivize buyers to come off the sidelines.”
Still, home prices keep going up; they rose 7% on an annual basis last month, according to Redfin. And the income needed to afford a median-priced home as of last month was 12% higher than a year earlier, 39% higher than two years ago, and 74% higher than three years prior. But the median household income increased by 6% over the last year, according to the analysis. Monthly mortgage payments are up on an annual basis, too, even if they’re down from October.
And like everything else in the housing world, the mismatch between incomes and home prices varies by metropolitan areas. In San Antonio, would-be buyers only needed to make 1% more than the prior year to afford a typical home. But in Anaheim, they needed to make 20% more than a year earlier to afford a normal home. Separately, in Detroit, typical households make 39% more than what’s needed to afford a median-priced home; in Los Angeles, the typical household earns 60% less than what’s needed to afford a median-priced home, according to Redfin.