Redfin Reports Buying a Home Just Got More Affordable for the First Time Since 2020

Rhea-AI Summary

Redfin reports that U.S. homebuyers now need an annual income of $115,454 to afford the median-priced home ($433,101), marking a 1.4% decrease year-over-year. This is the first annual decline since June 2020, primarily due to mortgage rates posting their first annual drop in three years. The average 30-year mortgage rate fell to 6.5% in August from 7.07% a year earlier.

Despite this improvement, the typical U.S. household, earning an estimated $83,853 per year, still falls 27.4% short of the required income to afford the median-priced home. Less than one-third of home listings are affordable for the typical household, down from over half pre-pandemic. Home prices have risen 3% year-over-year and are just 2.1% below their all-time high, mainly due to a shortage of homes for sale.

Positive

• First annual decline in income needed to afford a home since June 2020
• Mortgage rates posted their first annual decline in three years
• Home prices are up 3% year over year, indicating market stability

Negative

• Typical U.S. household still falls 27.4% short of the required income to afford the median-priced home
• Less than one-third of home listings are affordable for the typical U.S. household
• Home prices are just 2.1% below their all-time high, keeping affordability challenges

Insights

Financial Analyst

The report indicates a slight improvement in housing affordability, with the income required to afford a median-priced home dropping by 1.4% year-over-year to $115,454. This marks the first annual decline since June 2020, primarily driven by a decrease in mortgage rates from 7.07% to 6.5%. However, it's important to note that the typical household income of $83,853 still falls 27.4% short of the required amount.

The affordability gap remains significant, with the median household needing to spend 41.3% of their earnings on housing to buy the median-priced home, well above the 30% threshold for being considered "cost-burdened". This persistent affordability challenge, coupled with a 3% year-over-year increase in home prices, suggests that the housing market remains tight despite the slight improvement in affordability metrics.

Regional variations are notable, with Texas cities seeing the largest drops in income required to afford a home, while East Coast metros experienced the biggest increases. This divergence highlights the importance of local market conditions and supply dynamics in shaping affordability trends.

Real Estate Market Analyst

The report reveals a nuanced picture of the U.S. housing market. While affordability has marginally improved, structural challenges persist. The 1.4% decrease in required income is a positive sign, but it's overshadowed by the fact that less than one-third of home listings are affordable for the typical U.S. household, down from over half pre-pandemic.

Supply constraints continue to be a major factor, keeping prices elevated despite the slight affordability improvement. The median sale price of $433,101 is just 2.1% below the all-time high, indicating resilient demand despite affordability challenges. This suggests that any improvement in affordability could quickly be offset by increased buyer activity, potentially leading to further price increases.

The regional disparities are particularly noteworthy. Texas markets, benefiting from increased housing supply, are seeing improved affordability. In contrast, supply-constrained East Coast markets are experiencing rising prices and worsening affordability. This divergence underscores the critical role of housing supply in addressing affordability issues and suggests that markets with more flexible supply responses may see more sustainable improvements in affordability over time.

Buyers need to earn $115,000 to afford the typical U.S. home, down 1% year over year. Still, the typical household only earns $84,000—27% less than it needs.

SEATTLE--(BUSINESS WIRE)--

(NASDAQ: RDFN) — U.S. homebuyers need to earn an annual income of $115,454 to afford the median priced home ($433,101), according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That’s down 1.4% year over year—the first annual decline since June 2020, when mortgage rates set a new record low.

The income needed to afford a home fell because mortgage rates posted their first annual decline in three years. The average interest rate on a 30-year mortgage dropped to 6.5% in August from 7.07% a year earlier, and has since fallen further, now sitting at 6.09%.

This is based on a Redfin analysis of the estimated median U.S. household income and median monthly housing payments as of August 2024. References to the “median-priced” home in August refer to the median sale price of homes that were purchased during the month. Redfin considers a home affordable if a buyer taking out a mortgage spends no more than 30% of their income on their monthly housing payment.

“Housing affordability is improving for the first time in four years, so if you want to buy a home and can afford to, now could be a good time because it’s unlikely to become markedly cheaper in the near future,” said Redfin Senior Economist Elijah de la Campa. “Many house hunters are waiting to see if mortgage rates fall a lot further, but that probably won’t happen anytime soon. That’s because the Fed’s latest interest rate cut and its plans for future cuts were highly anticipated, meaning they’re already mostly priced into mortgage rates. When the Fed cuts short-term interest rates, long-term rates like mortgage rates don't always move down nearly as much."

Home prices also tend to go up over time, so waiting to buy likely means a higher price tag and down payment. It also may mean more competition because eventually, other buyers will realize rates probably won’t come down substantially more and will jump into the market.

While housing affordability improved in August, the average American household still can’t afford to buy a home. The typical household earns an estimated $83,853 per year, which is 27.4% less than the $115,454 they need to afford the typical house. A household on the median income would need to spend 41.3% of their earnings on housing to buy the median priced home. Any household that spends over 30% is considered “cost burdened.” Less than one-third of home listings are affordable for the typical U.S. household, down from more than half before the pandemic.

That’s likely one reason many house hunters remain on the sidelines despite the drop in mortgage rates. Home prices are up 3% year over year and are just 2.1% below their all-time high, primarily because a shortage of homes for sale is keeping prices elevated. This is giving some buyers sticker shock. Other buyers are holding off because they’re confused about the new NAR rules or are waiting to see how the presidential election shakes out.

February 2021 was the last month on record when the typical household earned enough to afford the median priced home. Back then, the median household income was $69,021, or 5.7% more than the $65,308 needed to afford the typical home.

Texas Is Home to Three of Five Metros That Saw Biggest Drops in Income Needed to Afford a Home

In Austin, TX, homebuyers need to earn an annual income of $133,346 to afford the median priced home, down 7.9% year over year—the largest decline among the 50 most populous U.S. metropolitan areas. Next came San Antonio (-7.1%), San Francisco (-6.2%), Oakland, CA (-5.5%) and Fort Worth, TX (-5.2%).

Those five metros saw bigger home-price declines than anywhere else in the nation last month, which is why they saw the largest improvements in affordability. San Antonio’s median sale price fell 4.4% year over year—the biggest drop among the top 50 metros. In second place was Austin (-4.3%), followed by San Francisco (-2.2%), Fort Worth (-1.9%) and Oakland (-1.7%). Only three other major metros saw price declines: Jacksonville, FL, Nashville and Kansas City, MO.

Texas has been building more homes than any other state, which has put downward pressure on prices because it means homebuyers have more options to choose from. In Austin, the housing market has also lost steam because an influx of out-of-towners in recent years drove housing costs to unsustainable heights, leaving many buyers priced out.

East Coast Is Home to Four of Five Metros With Biggest Increases in Income Needed to Afford a Home

In Philadelphia, homebuyers need to earn an annual income of $82,447 to afford the median priced home, up 5.8% year over year—the steepest increase among the metros Redfin analyzed. Next came Chicago (5.4%), Nassau County, NY (4.6%), Providence, RI (2.6%) and New Brunswick, NJ (2.5%).

These metros have seen some of the biggest jumps in home prices, which is driving up the income needed to afford a home. Home prices in Nassau County jumped 10% year over year in August—a bigger increase than any other major metro. Also in the top five were Philadelphia (9.1%), Providence (7.8%) and New Brunswick (7.7%).

Many East Coast metros are dense and thus more supply-constrained than, say, Texas, which is one reason prices are rising.

To view the full report, including a chart, metro level data and a detailed methodology, please visit: https://www.redfin.com/news/income-needed-to-afford-home-drops-2024/

About Redfin

Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people.

Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®.

For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240924913594/en/

Redfin Journalist Services:

Angela Cherry

press@redfin.com

Source: Redfin

FAQ

What is the annual income needed to afford the median-priced home in the U.S. according to Redfin (RDFN)?

According to Redfin's report, U.S. homebuyers need an annual income of $115,454 to afford the median-priced home of $433,101.

How has the income required to afford a home changed year-over-year as per Redfin's (RDFN) latest report?

The income needed to afford a home has decreased by 1.4% year-over-year, marking the first annual decline since June 2020.

What was the average 30-year mortgage rate in August 2024 according to Redfin's (RDFN) analysis?

The average interest rate on a 30-year mortgage dropped to 6.5% in August 2024, down from 7.07% a year earlier.

Which U.S. metro area saw the largest decline in income needed to afford a home, as reported by Redfin (RDFN)?

Austin, TX saw the largest decline, with homebuyers needing an annual income of $133,346 to afford the median-priced home, down 7.9% year-over-year.