A senior economist at Redfin this week said housing affordability in the United States has "collapsed" as home costs outpace median household incomes.
Would-be homebuyers need to have an annual income of $113,520 to afford a typical home in the U.S., according to a new analysis by real estate brokerage Redfin. A recent analysis from financial services firm Bankrate also had similar findings, noting that American households need to make more than $110,871 to comfortably afford a median-priced home of $420,343 in at least 22 U.S. states and Washington, D.C.
In comparison, the typical household earns $84,072 annually-nearly $30,000 less than needed to afford a median-priced home. That is based on the median sale price of homes purchased in the month of February. The study also noted that it considers a purchase "affordable" if the buyer does not spend more than 30% of their income on monthly mortgage payments.
"Since the pandemic, affordability has just totally collapsed," Chen Zhao, Redfin's senior economist, said.
What Caused Soaring Home Prices?
The Redfin study noted that February 2021 was the last month when the typical household earned more than needed to afford a median home. Since then, home prices have steadily outpaced household incomes.
One of the reasons why home values have soared since 2021 is chronic underbuilding, which was further tested when the COVID-19 pandemic fueled a homebuying boom, the report noted, citing senior economist Elijah de la Campa.
The deficit increased further after mortgage rates soared, hitting 8% in October last year-the first time since the year 2000. At its peak, homebuyers needed to earn $120,500 to afford a typical home. That was 51% or $40,810 more than the $79,689 earned by the typical household.
"It's been a pretty big change since last October," Zhao said.
Furthermore, a lack of inventory in the housing market has also led home prices to rise. The median sale price of U.S. homes rose 7% year-over-year in February 2024 to $412,778, the report noted.
One other reason attributed to rising home values is seasonal pricing.
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