Americans hoping to purchase a home need to make 80% more than they did before the COVID-19 pandemic to comfortably afford a house in the current market, new research found.
Homebuyers today would need to make more than $106,000 to afford a house comfortably. That's a $47,000 or 80% increase from the $59,000 annual household income they needed to make in January 2020, pre-COVID, that put homeownership within reach, according to new research from digital real estate company Zillow.
Homeownership is commonly considered affordable if a buyer does not need to spend more than 30$ of their pre-tax income on housing costs. This includes mortgage payments, which, at the time of the study, had a rate of 6.6%.
"Home shoppers today need to make more than $106,000 to comfortably afford a home. That is 80% more than in January 2020, showing how the math has changed for hopeful buyers, who are more often partnering with friends and family or "house hacking" their way to homeownership," the report said.
Why Is Home Affordability Declining?
There are a number of reasons driving home affordability issues in the past months. First, home prices are now 42.4% more expensive than they were prior to the COVID-19 pandemic, with the typical US home now worth about $343,000.
Mortgage payments have also nearly doubled. In January 2020, mortgage rates on a 30-year loan were around 3.5%. Today, they are at 6.94%, according to Freddie Mac. That means mortgage payments increased by over 96% to $2,188 a month, assuming a homebuyer puts a 10% down payment.
Additionally, wages have failed to keep up. In 2020, the median income was about $66,000, which meant American households had the financial means to afford homeownership.
The median household income has only grown 23% ever since to $81,000. For a household making the median income, it may take them 8.5 years to save enough for a 10% down payment, the report noted.
Due to the rising cost of home buying, some have resorted to renting out part of their home to generate extra income. Others have also turned to co-buying with a friend or relative.
