A new analysis finds that the average U.S. income is no longer enough to afford a typical home in half of America. But just how much will they need?
Worse Than We Thought?
It’s not news that home ownership is becoming more unaffordable in the U.S. However, a new report by consumer financial services company Bankrate suggests housing affordability is worse than expected.
Six-Figure Income Needed
According to Bankrate.com analysis, interested homebuyers must have a six-figure income to comfortably afford the average home in 22 different U.S. states.
Enormous Change Since 2020
This is a staggering increase since 2020, when Bankrate released a similar report showing that the same income was only necessary to afford a typical house in six states.
22 States With Expensive Housing
Bankrate posits that homebuyers will need to earn an annual income of $110,871 to afford a typical house in these states today.
Median-Priced Homes
They listed “median-priced homes” as homes that cost $402,343 based on data from residential real estate brokerage Redfin.
6 Most Expensive States
In their initial 2020 report, an income exceeding $100,000 was only needed to purchase a home in California, Hawaii, Massachusetts, New York, New Jersey, Washington, and the District of Columbia.
16 More Join the List
The most recent report has extended this number to 16 more states, particularly states in the West like Idaho, Montana, and Utah.
Average U.S. Income Doesn’t Match Up
These are disheartening statistics for many Americans, as the average median household income in the U.S. is just $74,580, according to data collected in 2023 by the U.S. Census Bureau.
Unattainable for Most Americans
If the analysis from this recent report is correct, it means that most Americans can no longer afford to buy an average house in half of all U.S. territories.
Supply and Demand
Analysts at Bankrate have pointed to a major discrepancy in supply and demand as the main driver for housing unaffordability.
Bankrate Analysts Speak
“Homes have become less affordable because home price appreciation has so far outpaced wage growth,” said analyst Jeff Ostrowski. “Why have home prices gone up so quickly? Blame supply and demand.”
“Constrained By a Number of Factors”
“Over the past few years, the supply of homes has been constrained by a number of factors, including muted homebuilding and the lock-in effect,” he continued.
“But demand for homes has been growing, and there are more buyers than sellers.”
Mortgage Rates Surge
U.S. families have also been faced with a surge in mortgage rates, which have increased by three percentage points since the start of the Covid-19 pandemic in 2020.
3% Increase
Bankrates survey of large lenders showed that the average 30-year fixed rate was set at 3.68% in January 2020, compared to a 7.07% rate in March of this year.
Inflation and Interest Rates to Blame?
Mortgage rate increases can be blamed on record-high inflation in recent years and rising interest rates as the Federal Reserve clamors to reduce post-pandemic inflation.
Some Optimistic Signs
But it’s not all doom and gloom for potential homebuyers earning a median wage. The number of homes for sale across the country increased 8.8% in February, signaling that housing stock is on an upward trajectory.
Different Rules for Different Situations
While the Bankrates report considers income and average mortgage payments, it can’t consider individual circumstances like savings, debt, and other assets.
South and Midwest Still Affordable
There are still states, particularly in the South and the Midwest, where a typical home is very accessible to median-income earners.
5 States With the Lowest Requirements
Arkansas, Indiana, Kentucky, Mississippi, and Ohio have the lowest income requirements of all 50 US states. Buyers in these states need an average income between $63,000 and $65,200 to buy typical homes.
Trends Intensify
“That trend has been going on for decades, and it has intensified,” Ostrowski said of the exodus to these more affordable regions.
“Meanwhile, some bargain-hunting buyers have moved to affordable markets in the Rust Belt and the Midwest.”
Featured Image Credit: Shutterstock / Andrey_Popov.
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