The last two years of soaring mortgage rates and rising home prices have brought the fastest erosion in housing market affordability in modern history, and it’s hurt first-time homebuyers the most.
A homebuyer must earn $114,627 to afford the median-priced U.S. home, up 15% ($15,285) from a year ago and up more than 50% since the start of the pandemic in early 2022. That’s the highest annual income necessary to afford a home on record. Meanwhile, wages have only increased by 5% since 2022.
To conduct this analysis, Redfin compared median monthly mortgage payments for homebuyers in August 2023 and August 2022.
On Thursday, 30-year fixed-rate mortgage rates crossed the 8% threshold, according to Mortgage News Daily. In March 2022, the 30-year fixed-rate mortgage averaged 3.56%.
Meanwhile, the median price for a U.S. home was $420,000 in August, up 3% compared to August 2022. At the start of the pandemic, the median sales price was $260,062.
In the latest September existing home sales report, the median price remained 2.8% higher than in September 2022. On a month-to-month basis, the payment for the average U.S. buyer hovers around $2,866, an all-time high according to Redfin.
Of course, high mortgage rates and home prices don’t harm all-cash buyers and move-up buyers as greatly.
In terms of metro-level disparities, the quintessential “zoomtown” of Miami is where income needed to buy the median home rose the most. Interesting, Austin, another zoomtown, was the metri that saw the smallest uptick.
In both metro Miami and Newark, homebuyers need to earn 33% more than they did in 2022 to afford a median-priced U.S. home. For instance, homebuyers in Miami now need to make $143,000 to afford the monthly mortgage payment of $3,580. In Newark, buyers need $160,000.
In Bridgeport, Connecticut, Dayton, Ohio, Rochester, New York and Hartford, Connecticut, the necessary income also increased by over 30%. However, Austin was a place where the necessary income to buy a house increased the least, by only 8%. Today, homebuyers need to earn $126,000 to afford a median-priced home in Austin. Meanwhile, buyers in San Francisco and San Jose, the most expensive markets in the country must earn more than $400,000 to afford the median-priced home in their area.
Inventory remains one of the driving forces in this difficult housing market. According to another study by Redfin, 2023 is poised to end with roughly 4.1 million existing home sales nationwide, the lowest number since the housing bubble burst in 2008.
In its latest economic commentary, the Fannie Mae’s Economic and Strategic Research (ESR) group latest commentary, Doug Duncan, Fannie Mae’s senior vice president and chief economist, said that he does not anticipate affordability issues will ease in 2024.
“We expect the higher mortgage rate environment to continue to dampen housing activity and further complicate housing affordability into 2024,” Duncan said.