Home Ownership Becoming a Distant Dream
Introduction to the Crisis
The dream of owning a home is becoming increasingly difficult for most Americans to achieve. Elevated mortgage rates and rising home prices are stretching the limits of what buyers can afford, making it harder for people to purchase their own homes. A homebuyer now needs to earn at least $114,000 a year to afford a $431,250 home, which is the national median listing price in April, according to data released by Realtor.com.
The Widening Affordability Gap
Rising Income Requirements
The analysis assumes that a homebuyer will make a 20% down payment, finance the rest of the purchase with a 30-year fixed-rate mortgage, and that the buyer’s housing costs won’t exceed 30% of their gross monthly income. Based on the latest U.S. median home listing price, homebuyers need to earn $47,000 more a year to afford a home than they would have just six years ago. Back then, the median U.S. home listing price was $314,950, and the average rate on a 30-year mortgage hovered around 4.1%. This week, the rate averaged 6.76%.
Regional Variations
In several metro areas, including San Francisco, Los Angeles, New York, and Boston, the annual income needed to afford a median-priced home tops $200,000. In San Jose, it’s more than $370,000. The annual income required to afford a median-priced U.S. home first crossed into the six figures in May 2022 and hasn’t dropped below that level since. Median household income was about $80,600 annually in 2023, according to the U.S. Census bureau.
The Impact of Mortgage Rates
Historical Context
Rock-bottom mortgage rates turbocharged the housing market during the pandemic, fueling bidding wars for homes that pushed up sale prices sometimes hundreds of thousands of dollars above a seller’s initial asking price. U.S. home prices soared more than 50% between 2019 and 2024.
The U.S. housing market has been in a sales slump since 2022, when mortgage rates began to climb from their pandemic-era lows. Sales of previously occupied U.S. homes fell last year to their lowest level in nearly 30 years. In March, they posted their largest monthly drop since November 2022.
A Glimmer of Hope
Slowing Price Growth
It’s not all bad news for prospective homebuyers. Home prices are rising much more slowly than during the pandemic housing market frenzy. The national median sales price of a previously occupied U.S. home rose 2.7% in March from a year earlier to $403,700, an all-time high for March, but the smallest annual increase since August. In April, the median price of a home listed for sale rose only 0.3% from a year earlier, according to Realtor.com.
Increased Inventory
Buyers who can afford current mortgage rates have a wider selection of properties now than a year ago. Active listings — a tally that encompasses all homes on the market except those pending a finalized sale — surged 30.6% last month from a year earlier, according to Realtor.com. Home listings jumped between 67.6% and 70.1% in San Diego, San Jose, and Washington D.C. FILE – A sign announcing a home for sale is posted outside a home, Thursday, Feb. 1, 2024, in Aceworth, Ga., near Atlanta. (AP Photo/Mike Stewart, File)
Seller Flexibility
As properties take longer to sell, more sellers are reducing their asking price. Some 18% of listings had their price reduced last month, according to Realtor.com. “Sellers are becoming more flexible on pricing, underscored by the price reductions we’re seeing, and while higher mortgage rates are certainly weighing on demand, the silver lining is that the market is starting to rebalance,” said Danielle Hale, chief economist at Realtor.com. “This could create opportunities for buyers who are prepared.”
Conclusion
The widening affordability gap in the housing market is a pressing concern for many Americans. While there are signs that the market may be rebalancing, with slowing price growth and increased inventory, the fact remains that home ownership is becoming increasingly out of reach for many people. As the market continues to evolve, it will be important for buyers, sellers, and policymakers to adapt and find ways to make housing more affordable for all.
FAQs
Q: What is the current national median listing price for a home in the US?
A: The current national median listing price for a home in the US is $431,250.
Q: How much does a homebuyer need to earn to afford a median-priced home?
A: A homebuyer needs to earn at least $114,000 a year to afford a $431,250 home.
Q: What is the average rate on a 30-year mortgage?
A: The average rate on a 30-year mortgage is 6.76%.
Q: Are home prices still rising rapidly?
A: No, home prices are rising much more slowly than during the pandemic housing market frenzy. The national median sales price of a previously occupied U.S. home rose 2.7% in March from a year earlier.
Q: Is it still a good time to buy a home?
A: It depends on individual circumstances. While mortgage rates are high, there are signs that the market is rebalancing, with slowing price growth and increased inventory, which could create opportunities for buyers who are prepared.
