The annual income hopeful buyers would need to afford a home in the United States has fallen to just over $115,000, marking the first decline since June 2020.
As of August, US homebuyers would need to earn at least $115,454 per year to afford a median-priced home, per a new Redfin analysis. For perspective, a typical US home is currently worth $433,101.
The income threshold is down 1.4% from the same period last year. It is also the first decline recorded since June 2020, when mortgage rates fell to a record 2.97% after the Federal Reserve cut its interest rates amid the COVID-19 pandemic.
Why the Income Threshold Fell
The income needed to buy a home fell after mortgage rates declined. The average contract rate on a 30-year mortgage loan dipped to 6.5% in August. In the same period in 2023, the mortgage rate on a 30-year term was 7.07%.
According to data from Freddie Mac's Primary Mortgage Market Survey, the 30-year mortgage rate is currently at 6.09%.
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Mortgage rates are expected to fall further, especially after the Federal Reserve cut its interest rates by 50 basis points last week. Experts believe mortgage rates would also decline by the same share. Mortgage rates could dip to 5.59%, giving buyers more spending power.
Did Home Affordability Improve
Despite giving buyers additional spending power, experts said homes are unlikely to become more affordable anytime soon.
"Housing affordability is improving for the first time in four years, so if you want to buy a home and can afford to, now could be a good time because it's unlikely to become markedly cheaper in the near future," Redfin Senior Economist Elijah de la Campa said.
Apart from high home prices, caused largely by the supply shortage in the market, another reason properties remain unaffordable for many is lagging wages. The average American household earns $80,610 annually, the US Census Bureau reported. That is 30.18% or $34,844 less than the $115,454 needed to afford a typical home.
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