Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.
The Income Needed to Buy a Typical Home Has Soared 80% Since 2020
By Pete Grieve MONEY RESEARCH COLLECTIVE
The typical monthly mortgage payment is up to $2,188, according to Zillow.
The income needed to afford a typical home has increased by a staggering 80% in the past four years, highlighting just how much current home prices and mortgage rates are straining buyers’ budgets.
Last month, homebuyers needed to make about $106,500 to afford the monthly mortgage payments for a typical home. That’s up from about $59,000 in January 2020, according to a new report from Zillow.
Four years ago, most households could comfortably cover the monthly payments on a typical home because the median income was about $66,000.
Incomes are much higher today, with the typical household bringing in about $81,000, according to Zillow’s estimates. However, that roughly 23% increase in median income isn’t nearly enough to offset the $47,000 spike in what it takes to afford the typical home.
The report’s calculation of the income needed to afford a home is based on the assumption you shouldn’t spend more than 30% of your income on your total monthly payments, which include home insurance, property taxes and maintenance.
Find your actual rate at Rocket Mortgage (NMLS #3030) Today!
View RatesWhy homes are so much less affordable
With a 10% down payment, Zillow reports that the typical monthly mortgage payment was $2,188 in January, which is nearly double (up 96.4%) what it was four years ago.
Much of that increase is due to the pandemic boom in home values, which are 42.4% higher than the January 2020 level. The other major element is mortgage rates: The current average rate on a 30-year fixed-rate loan is 6.9%, according to Freddie Mac. In January 2020, rates were around 3.5%.
To cope with higher monthly payments, today’s homebuyers are relying on several strategies including renting out parts of their homes, moving to cheaper cities and even “cobuying” houses with friends, according to Zillow.
Home prices could continue to rise in 2024, further challenging affordability. A new Fannie Mae report forecasts a 3.8% increase in home prices this year, which is higher than the expectation last month of a 2.4% increase.
“As the dearth of listings boosts both prevailing values and expected future prices, the affordability concerns of prospective homebuyers are unlikely to fade soon,” Terry Loebs, founder of research firm Pulsenomics, said in the report.
The one piece of good news is that Fannie Mae’s panel of experts forecasts mortgage rates will fall to 6% by the end of the year.
More from Money:
Best Mortgage Lenders of February 2024
This Year May Be ‘Tough’ for Housing Affordability — But Help Is on the Way: HUD Secretary
Here’s the ‘Magic’ Mortgage Rate That’ll Nudge Many People Into Buying Homes
Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete covers trending stories that affect Americans’ wallets on topics including car buying, insurance, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News in Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and he attended the annual Investigative Reporters and Editors conference in 2021. Pete has discussed his reporting in interviews with outlets including the Columbia Journalism Review and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.