First-time buyers in the United States would now need to earn nearly $114,000 to afford a median-priced home, according to a new study.
As of February, first-time buyers need to earn an annual income of $113,520 to afford a starter home. In February, the median-priced home was $412,778, a new Redfin analysis found. That needed income is 35% higher than the $84,000 median household income in the US.
In comparison, a typical household earned $4,000 more than what was needed to afford a median-priced home in February of 2021.
"Back then, the median household income was $69,021-6% higher than the $65,292 needed to afford the typical home," the study said.
What Is Fueling the Housing Affordability Crisis?
Several factors play a role in the rise in annual income needed to purchase a home. For instance, mortgage rates soared after the Federal Reserve hiked interest rates in an effort to cool down inflation. In the week ending March 28, mortgage rates for the 30-year loan were 6.79%, according to Freddie Mac.
The housing boom during the COVID-19 pandemic also contributed to the affordability crisis. At the time, home prices and mortgage rates were historically low, but a surge in homebuying during the pandemic ate away at the supply in the housing market, fueling a rise in prices.
"For over a decade, America has been slowly marching toward a housing affordability crisis due to chronic underbuilding, and that crisis was kicked into overdrive when the pandemic homebuying boom fueled a meteoric rise in housing prices," Redfin Senior Economist Elijah de la Campa said.
"Now there's another culprit squeezing homebuyers: elevated mortgage rates. We're slowly climbing our way out of an affordability hole, but we have a long way to go. Rates have come down from their peak, and are expected to fall again by the end of the year, which should make homebuying a little more affordable and incentivize buyers to come off the sidelines," he added.
That being said, the results of Redfin's latest analysis showed an improvement in the housing market. In October, when mortgage rates peaked at 8%, homebuyers needed an annual income of $120,500 to afford the typical home. That is 51% more than the $79,689 median income at the time.
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