Median-income homebuyers can afford $30k more house than year ago: Study
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When it comes to buying a home, affordability continues to slowly improve.
U.S. households with median income (estimated at $86,300) and enough money for a 20% down payment can buy a home for up to $331,483, up $30,302 from $301,181 the previous year, according to a new study. report From Zillow. By “affordable,” Zillow means the monthly mortgage payment, including insurance and property taxes, will be under 30% of household income.
“A $30,000 increase in purchasing power could open the door to a different neighborhood, a larger home, or a home with fewer compromises,” the report says.
The improvement is at least partly due to slowly falling interest rates. The average rate for a 30-year fixed mortgage was 5.99 percent As of February 27 but has accelerated since then 6.14%According to Mortgage News Daily. A year ago, this rate was 6.79%.
Even 0.5 percentage point lower rates for mortgages could make a difference, said Kara Ng, Zillow’s senior economist and author of the report.
“As a rough estimate, a half-point drop in mortgage interest rates could mean savings of about $1,000 per year for a typical U.S. home,” Ng said.
A 1 percentage point drop in rates would expand the pool of households that can afford to buy a home by about 1 percentage point. 5.5 million householdsThat includes about 1.6 million renters who may be buying a home for the first time, according to the National Association of Realtors. NAR said it estimates the income needed to afford an average-priced home assuming a 30-year mortgage, a 10% down payment and a mortgage payment of 25% of income, and then calculates it using a 7% mortgage rate and a 6% rate.
Average priced home still unaffordable
However, affordability is still limited. While the amount an average-income household can afford is higher than it was a year ago, it remains below the average price of a single-family home. $400,300 in January, according to NAR.
Based on that price and the 6.19% mortgage rate, based on the January average, buyers would need an income of $94,032 to qualify for a mortgage, according to NAR. affordability index. This measurement also assumes the buyer has a 20% down payment; in this case, this amount would be $80,060. And of course, lenders consider more than income when determining whether to approve a loan, including factors like credit score, credit history and outstanding debt.
That amount of income is less than a year ago: NAR’s affordability index shows buyers need an income of $102,096 to qualify, when the average rate is 7.04% and the median home price is $398,100.
Meanwhile, home values have risen much faster than household incomes. From 2000 to 2024, average per capita income increased by around 155%, while average house prices increased by approximately 207%. According to a recent study From the Federal Reserve Bank of St. Louis. Additionally, mortgage rates rose from less than 3% in mid-2021 to almost 8% in October 2023.
“Buyers are still feeling the impact of rapid price increases during the pandemic and mortgage rates that are much higher than they were earlier this decade,” Ng said.
More buyers in the market may increase prices
The increase in inventory is also helping affordability, with 6% more homes on the market in January than the previous year, according to a Zillow report. But, A wider housing shortage remains a problem.
The increase in affordability also means more potential buyers this spring.
“Unless housing supply increases, these additional potential buyers becoming active in the market could simply push up home prices,” NAR chief economist Lawrence Yun said in a January statement about pending home sales and increased affordability. he said.
