Americans hoping to purchase a home would need a six-figure salary to do so in nearly half the country, a new study found.
An analysis conducted by financial services firm Bankrate found that, in 22 states and Washington, D.C., buyers would need to make more than $110,871 to comfortably afford a median-priced home of $420,343. That is nearly a 50% increase from January 2020, when six-figure incomes were only needed by buyers in just six states and the District of Columbia.
"Affordability is the biggest issue - finding a home that's in your budget. The higher the price of a home, the harder it is to come up with the down payment or to qualify for the monthly payment. Home values are near record highs, and if you want a house, you have little choice but to pay a high price," Jeff Ostrowski, housing market analyst for Bankrate, said.
It is important to note that the study's definition of "affordability" is when a household does not spend more than 28% of its annual gross income on mortgage payments. The analysis also assumed buyers would make a 20% downpayment and take out a 30-year fixed-rate mortgage loan at the 52-week average rate. The analysis did not factor in closing costs, the type of home loan, and the location of the home.
States Where You Need the Most - And Least - Income To Afford a Typical Home
The analysis found that hopeful homebuyers would need the highest salaries in the West and Northeast to comfortably afford a typical home. The top five places are California, where a buyer would need at least $197,057 to afford a home; Hawaii, $185,829; District of Columbia, $167,871; Massachusetts, $162,471; and Washington State, $156,814.
In contrast, states in the Southern and Midwestern regions require lower incomes from aspiring homebuyers. The five states requiring the lowest income include Mississippi, $63,043; Ohio, $64,071; Arkansas, $64,714; Indiana, $65,143; and Kentucky, $65,186.
Home prices have risen over the past years as the housing market struggles with a lack of supply. This is attributed to less homebuilding and a "lock-in effect" of higher mortgage rates, leading existing homeowners to be more reluctant to sell.
