Home buyers need to earn $47,000 more than in 2020

Rhea-AI Summary

Zillow analysis reveals that the income required to afford a home comfortably has surged by 80% since 2020, with a median income increase of 23%. Homebuyers now need over $106,000 annually, almost double the mortgage payment from two years ago. Pittsburgh, Memphis, and Cleveland are the most affordable markets, while California households face the highest affordability challenges.

Economist

The significant disparity between the increase in income needed to afford a home compared to the rise in median income highlights the growing affordability crisis in the U.S. housing market. An 80% increase in the required income to comfortably afford a home since 2020, juxtaposed with a 23% rise in median income, suggests that housing prices are outpacing income growth at an alarming rate.

This trend has critical implications for the economy, as it can lead to a reduction in home ownership rates, increased demand for rental properties and potential stagnation in consumer spending due to higher proportions of income being allocated to housing costs. The widening gap may also exacerbate socioeconomic disparities, as access to homeownership becomes increasingly concentrated among higher-income individuals.

From an economic perspective, the housing affordability crisis could influence monetary policy decisions, as central banks may face pressure to address rising inflation in the housing sector. Additionally, this trend could impact labor mobility, as individuals may be less inclined to relocate for employment opportunities due to the high cost of housing in certain regions.

Market Research Analyst

The data indicating that mortgage payments on a typical U.S. home have nearly doubled since 2020 provides insight into the shifting dynamics of the real estate market. With Pittsburgh, Memphis and Cleveland cited as the most affordable markets and California requiring the highest income to afford a home, we observe significant regional variations in housing affordability.

These disparities can influence population migration patterns, with potential impacts on local economies and real estate markets. Areas with more affordable housing may attract a larger workforce, potentially leading to economic growth and increased demand for local services. Conversely, regions where housing affordability is a significant issue might experience a talent drain, as workers seek more cost-effective living conditions elsewhere.

Understanding these market dynamics is crucial for real estate investors, developers and policymakers. Stakeholders need to consider the long-term implications of current trends and explore strategies to increase housing affordability, such as revising zoning laws, investing in affordable housing developments, or offering financial assistance programs to first-time homebuyers.

Financial Analyst

The data provided suggests a substantial increase in the financial burden on prospective homebuyers, which could have a ripple effect on the broader economy and the stock market. As housing costs consume a larger portion of household incomes, discretionary spending may decrease, potentially affecting the retail sector, consumer goods and services industries.

In the short term, the real estate and construction sectors might experience a surge in activity due to high demand and limited supply, which could benefit companies within these industries. However, if the trend continues and home affordability remains a challenge, it may lead to a market correction or a decrease in home sales over time.

Investors should monitor the housing affordability index and related economic indicators to gauge the potential impact on consumer spending patterns and the performance of companies directly or indirectly tied to the housing market. Additionally, companies that offer alternative housing solutions or financial services that cater to homebuyers facing affordability challenges may present growth opportunities in this environment.

The income needed to comfortably afford a home is up 80% since 2020, while median income has risen 23% in that time

• Those shopping for homes today need to make more than $106,000 a year to comfortably afford a home.
• A mortgage payment on a typical U.S. home has nearly doubled since 2020.
• Pittsburgh, Memphis and Cleveland are the most affordable markets. Households in California need to make the most money to afford a home.

SEATTLE, Feb. 29, 2024 /PRNewswire/ -- Home shoppers today need to make more than $106,000 to comfortably afford a home, a new Zillow® analysis finds. 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.

In 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical U.S. home, spending no more than 30% of its income with a 10% down payment. That was below the U.S. median income of about $66,000, meaning more than half of American households had the financial means to afford homeownership.

Now, the roughly $106,500 needed to comfortably afford a typical home is well above what a typical U.S. household earns each year, estimated at about $81,000.¹

"Housing costs have soared over the past four years as drastic hikes in home prices, mortgage rates and rent growth far outpaced wage gains," said Orphe Divounguy, a senior economist at Zillow. "Buyers are getting creative to make a purchase pencil out, and long-distance movers are targeting less expensive and less competitive metros. Mortgage rates easing down has helped some, but the key to improving affordability long term is to build more homes."

A monthly mortgage payment on a typical U.S. home has nearly doubled since January 2020, up 96.4% to $2,188 (assuming a 10% down payment). Home values have risen 42.4% in that time, with the typical U.S. home now worth about $343,000. Mortgage rates ended January 2020 near 3.5%, keeping the cost of a home affordable for most households that could manage the down payment. At the time of this analysis, mortgage rates were about 6.6%.

For a household making the median income, it would take almost 8.5 years before they would have enough saved to put 10% down on a typical U.S. home, about a year longer than it would have in 2020.² It's no wonder, then, that half of first-time buyers say at least part of their down payment came from a gift or loan from family or friends.

With the cost of a mortgage rising, most millennial and Gen Z buyers say "house hacking" — the ability to rent out all or part of a home for extra cash — is very or extremely important. Co-buying with a friend or relative is another way to help with affordability, something 21% of last year's buyers reported doing.

Metro areas where a buyer could comfortably afford a typical home with the lowest income are Pittsburgh ($58,232 income needed to afford a home), Memphis ($69,976), Cleveland ($70,810), New Orleans ($74,048) and Birmingham ($74,338). The only major metros where a typical home is affordable to a household making the median income are Pittsburgh, St. Louis and Detroit.

There are seven markets among the major metros where a household's income must be $200,000 or more to comfortably afford a typical home. The top four are in California: San Jose ($454,296), San Francisco ($339,864), Los Angeles ($279,250) and San Diego ($273,613). Seattle ($213,984), the New York City metro area ($213,615) and Boston ($205,253) complete the list.

To help find a home within budget, home shoppers on Zillow can filter search results by monthly cost instead of by list price. The tool simplifies the complex calculation of translating a home's list price into the monthly cost, factoring in the latest mortgage rates.

Those needing a down payment boost may qualify for down payment assistance. Home listings on Zillow include a down payment assistance module to help shoppers see what local resources could be available to them.

Metropolitan Area*	Size Rank	Income Needed to Afford a Mortgage, January 2024	Change in Needed Income Since January 2020	Zillow Home Value Index (ZHVI), January 20243	Monthly Mortgage Payment, 10% Down4	Years to Save a 10% Down Payment
Pittsburgh, PA	27	$58,232	$23,675	$201,487	$1,286	5.3
Memphis, TN	43	$69,976	$31,717	$230,807	$1,473	6.9
Cleveland, OH	34	$70,810	$30,227	$211,712	$1,351	6.0
New Orleans, LA	46	$74,048	$19,203	$232,870	$1,486	7.0
Birmingham, AL	50	$74,338	$31,875	$246,805	$1,575	6.7
Oklahoma City, OK	41	$74,732	$31,057	$226,048	$1,442	6.3
Detroit, MI	14	$75,662	$31,124	$236,025	$1,506	6.1
Buffalo, NY	49	$76,884	$34,744	$242,435	$1,547	6.5
St. Louis, MO	21	$76,895	$31,880	$238,231	$1,520	5.9
Louisville, KY	45	$77,450	$31,185	$243,810	$1,556	6.8
Indianapolis, IN	33	$82,037	$38,150	$267,301	$1,706	6.6
Cincinnati, OH	28	$86,027	$38,050	$267,423	$1,706	6.8
Kansas City, MO	31	$92,896	$40,742	$289,290	$1,846	7.2
Houston, TX	5	$95,374	$39,779	$300,955	$1,920	7.5
San Antonio, TX	24	$95,767	$38,307	$283,161	$1,807	7.5
Columbus, OH	32	$95,821	$43,405	$297,637	$1,899	7.3
Milwaukee, WI	40	$100,822	$42,613	$321,037	$2,049	8.5
Virginia Beach, VA	37	$102,703	$43,989	$332,820	$2,124	8.2
Chicago, IL	3	$104,757	$39,716	$300,906	$1,920	6.7
Richmond, VA	44	$106,170	$47,930	$349,558	$2,231	7.9
United States	0	$106,536	$47,490	$342,941	$2,188	8.4
Philadelphia, PA	7	$109,257	$47,837	$343,102	$2,189	7.5
Jacksonville, FL	39	$109,271	$51,617	$348,665	$2,225	8.2
Charlotte, NC	23	$111,051	$55,239	$368,712	$2,353	9.2
Hartford, CT	48	$114,109	$52,114	$334,712	$2,136	7.3
Minneapolis, MN	16	$114,344	$41,867	$355,511	$2,269	7.3
Baltimore, MD	20	$114,348	$44,063	$367,861	$2,347	7.6
Atlanta, GA	9	$115,430	$55,989	$370,548	$2,364	8.0
Tampa, FL	18	$116,329	$58,577	$370,474	$2,364	9.8
Las Vegas, NV	30	$119,529	$54,172	$407,516	$2,600	10.6
Dallas, TX	4	$121,398	$53,679	$366,690	$2,340	8.3
Orlando, FL	22	$121,418	$58,140	$386,687	$2,467	9.9
Nashville, TN	36	$128,535	$59,508	$425,827	$2,717	10.1
Raleigh, NC	42	$130,472	$62,410	$430,562	$2,747	8.7
Phoenix, AZ	11	$131,322	$65,017	$447,074	$2,853	9.9
Providence, RI	38	$142,928	$65,387	$449,025	$2,865	10.1
Austin, TX	29	$149,267	$65,144	$451,322	$2,880	8.8
Miami, FL	8	$151,163	$74,834	$472,970	$3,018	12.3
Salt Lake City, UT	47	$154,455	$72,592	$523,832	$3,343	10.6
Portland, OR	25	$161,624	$65,664	$528,724	$3,374	11.0
Washington, DC	6	$166,551	$64,078	$539,116	$3,440	8.2
Sacramento, CA	26	$172,261	$69,908	$559,243	$3,569	11.6
Denver, CO	19	$172,704	$71,338	$566,692	$3,616	10.7
Riverside, CA	13	$173,375	$81,676	$563,468	$3,595	12.6
Boston, MA	10	$205,253	$86,967	$650,890	$4,153	11.6
New York, NY	1	$213,615	$78,696	$627,944	$4,007	12.9
Seattle, WA	15	$213,984	$94,163	$697,824	$4,453	12.2
San Diego, CA	17	$273,613	$131,018	$902,199	$5,757	16.9
Los Angeles, CA	2	$279,250	$121,457	$918,247	$5,859	19.4
San Francisco, CA	12	$339,864	$119,614	$1,104,853	$7,050	16.0
San Jose, CA	35	$454,296	$191,071	$1,493,255	$9,528	18.8

*Table ordered by income needed to afford a mortgage in January 2024.

About Zillow Group

Zillow Group, Inc. (NASDAQ: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences.

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce® and Follow Up Boss®.

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2023 MFTB Holdco, Inc., a Zillow affiliate.

¹ Median household income is taken from the American Community Survey (ACS) through 2022. Present-day estimates combine changes in the Employment Cost Index provided by the Bureau of Labor Statistics to forecast current median household income.

² Years to save figures assume a household saves 5% of its total income each month.

³ Smoothed and seasonally adjusted ZHVI.

⁴ Monthly mortgage payment includes principal and interest as well as estimated taxes and insurance for a 10% down payment on a home priced at that region's ZHVI.

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SOURCE Zillow

How much income do home shoppers need to comfortably afford a home according to Zillow's analysis?

Home shoppers need over $106,000 annually to comfortably afford a home.

What percentage increase has there been in the income required to afford a home since 2020?

The income required to afford a home has surged by 80% since 2020.

Which markets are the most affordable for homebuyers according to the analysis?

Pittsburgh, Memphis, and Cleveland are the most affordable markets for homebuyers.

Which households face the highest income requirements for affording a home?

Households in California face the highest income requirements for affording a home.

What was the median income increase since 2020 according to the analysis?

The median income has risen by 23% since 2020.

What was the income threshold for comfortably affording a home in 2020?

In 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical U.S. home.

What strategies are hopeful buyers adopting to achieve homeownership?

Hopeful buyers are more often partnering with friends and family or 'house hacking' their way to homeownership.