The affordability crisis in the housing market in the U.S. is reaching new heights, with housing costs significantly outpacing median household incomes. According to a recent analysis by Redfin, a national real estate brokerage site, potential homebuyers now need to earn an annual income of $113,520 to afford the typical house in the U.S. This figure is a staggering 35% higher than the median household income, which currently stands at $84,072. Senior economist at Redfin, Chen Zhao, pointed out that affordability has deteriorated drastically since the onset of the pandemic.
Impact on Household Income
The data revealed by Redfin shows that the last time households in the U.S. had a surplus to afford the median home was back in February 2021. Since then, there has been a persisting deficit, with the peak occurring in October 2023. This peak coincided with a spike in mortgage rates, which also contributed to keeping home prices high. In February 2024, the median sale price for a house was reported at $412,778, further exacerbating the affordability crisis across the country.
Despite the challenges, there have been signs of improvement in the housing market. The affordability deficit has narrowed in recent months, primarily due to the decline in mortgage rates following the peak in October 2023. This decrease has provided some relief to potential buyers, although the gap between household incomes and housing costs remains substantial. Experts believe that borrowing costs are likely to reduce further as the Federal Reserve moves forward with its plans to cut back interest rates.
With the current scenario indicating that a household needs to earn around $114,000 annually to afford a median-priced home, experts recommend that price-sensitive buyers consider investing in starter homes. These entry-level properties are more affordable, with buyers needing an income of approximately $76,000 a year to purchase them. However, finding starter homes has become increasingly challenging as home builders have shifted their focus away from constructing entry-level housing in recent years.
The disparity in housing affordability varies significantly across different metropolitan areas in the U.S. While some cities require a six-figure income to afford the typical home, there are 13 urban regions where buyers can purchase a median-priced home without earning over $100,000 annually. Cities like Detroit, Cleveland, Pittsburgh, and St. Louis offer relatively more affordable housing options, with median incomes needed to afford homes being significantly lower compared to national averages.
Looking ahead, experts anticipate that borrowing costs will continue to decrease, and home price growth is expected to stabilize as inventory levels rise. Recent data from Redfin shows a significant increase in new listings, indicating a potential shift towards a more balanced market. While these trends suggest improvements in affordability, it is essential for buyers to carefully evaluate their financial situations before making purchasing decisions. Experts advise that if buyers are ready and can afford to buy a home now, they should proceed, as waiting may not significantly improve conditions in the near future. Although market conditions are expected to evolve, the fundamental challenges in housing affordability are likely to persist.