BAM's Key Details
- A Redfin report assessed the annual income required for a median-priced home
- With mortgage rates around 7%, the median monthly mortgage payment is at $2,682
- The annual income of $107,281 for a median-priced home is up 46% from a year ago
According to a new Redfin report, today’s homebuyers need an annual income of $107,281 to afford the typical U.S. home—46% more than a year ago.
With interest rates around 7%, the monthly mortgage payment for a median-priced home is at $2,682—compared to $1,842 a year ago, when the required annual income was $73,668.
Since most of today’s borrowers aren’t being paid 46% more than a year ago, today’s required income means those buyers no longer have the option of buying a median-priced home.
Unless they’ve been waiting for an excuse to buy a van/bus and convert it to a mobile home (#VanLife), the options for today’s homebuyer are now (1) buy a lower-priced home, or (2) continue renting until market conditions enable them to afford a home that suits them.
Here’s what you need to know.
Loss of buying power
In today’s market, anyone earning less than $107,281 can’t afford a home at the median price point. A year ago, anyone earning at least $73,668 a year could. That difference of 45.6% is one that many Americans feel right now as they shop for homes they can afford.
And there’s no guarantee mortgage rates will go down anytime soon. Home prices are more likely to dip, especially in areas with explosive growth during the pandemic.
But thanks to low inventory, housing market experts don’t expect steep declines in home prices.
70% increase in monthly payments
With the steep rise in monthly mortgage payments, affordability is the number one barrier between would-be homebuyers and the homes they want—in the neighborhoods they want.
From February 2020 (right before the pandemic officially started) to October 2022, the monthly mortgage payments on a median-priced home went up roughly 70%, putting those homes well beyond the housing budget for many Americans.
And sellers at the median price point aren’t lowering their prices enough to offset the higher mortgage rate (unless they have to).
No longer able to afford the homes they want in the locations they want, more Americans are considering homes at a lower price point—or homes that are further away from their preferred location.
And as more buyers take an interest in those homes, prices are likely to increase.
The other option is renting, which many Americans are choosing as a more affordable option, even as rents continue to increase. Many are looking at homes they can afford in today’s market and seeing zero reason to give up the perks they enjoy as renters.
Metros with the biggest increases in required income
Florida is seeing some of the most eye-popping increases in the income required to buy a median-priced home.
In North Port, home shoppers need an annual income of $131,535 to afford the typical monthly mortgage payment of $3,288. The income required is 73.9% higher than the $75,659 required a year ago—the biggest annual increase of any major metro in the U.S.
North Port is followed by Miami, where buyers need an annual income of $128,892—a year-over-year increase of 63.7%.
Rounding out the top five—
- El Paso, TX: $64,580, up 63.6%
- Tampa: $101,682, up 62.4%
- Cape Coral, FL: $104,943, up 60.6%
Out of the 20 metros where the minimum income required to afford a home has increased, 16 are in the Sun Belt. This area has long been popular among homebuyers, thanks to relative affordability and warm weather.
Remote work has increased the popularity of these hot spots even more, driving up home prices and making them less affordable.
Homebuyers need $100,000+ in 45 major metros
In 45 major U.S. metros—roughly half of the metros in Redfin’s analysis—homebuyers need to earn a minimum of $100,000 a year to afford the typical home. A year ago, that was true of only 16 metros.
The incomes needed to buy a home in San Francisco and San Jose are the highest in the U.S., followed by Anaheim, CA, where buyers must earn $254,286 to afford the typical monthly mortgage payment of $6,357 (up 42.1% year over year).
Oakland and Los Angeles ($221,592, up 40.7% year over year) round out the top five.
Buyers in Detroit need a minimum annual income of $48,435—the lowest income of all the metros in Redfin’s analysis but still up 42.3% from a year ago.
Next in line—
- Dayton, OH: $51,126, up 46.1%
- Cleveland: $53,817, up 45.7%
- Rochester, NY: $56,508, up 56.2%
- Pittsburgh: $57,853, up 41.7%
One thing you can do as an agent in the current market is to encourage your clients to think long-term—not to push them into a mortgage they can’t afford but to help them see that today’s market conditions are temporary.
Help them see the pros and cons of each option, so they can make a decision that makes the best sense for them now. Don’t pressure them to buy, but help them see the benefits of homeownership—even if their next home isn’t the house of their dreams.
If they hold off, keep them informed of any changes and opportunities in their market, with their permission.
Give them a reason to think of you when they’re ready to buy or sell.