Redfin Reports The Typical Household Earns Roughly $30,000 Less Than Needed to Afford the Median-Priced Home

Rhea-AI Summary

Redfin's report reveals that buyers need to earn $114,000 to afford the typical U.S. home, marking a 35% increase from the median household income. Despite this, it is an improvement from October when buyers needed $121,000. The housing affordability crisis persists, with the median household income falling short by $29,448. Affordability challenges are exacerbated by rising mortgage rates, but there is hope as rates are expected to decrease by year-end.

Insights

Economist

The recent report by Redfin highlights a critical aspect of the U.S. economy: the housing affordability crisis. While the median household income has seen a modest increase of 6% over the past year, it pales in comparison to the 12% increase in income needed to afford a median-priced home. This widening gap indicates a persistent imbalance in the housing market that has significant implications for consumer spending, savings rates and overall economic health.

From an economic perspective, the disparity between income growth and housing costs suggests that more households may opt to rent rather than buy, which could lead to a shift in the housing market dynamics. Additionally, the high cost of housing can contribute to greater economic inequality, as homeownership is a key pathway to building wealth. The regional differences in affordability, with some areas requiring significantly higher incomes to afford homes, could also influence migration patterns, potentially impacting local economies and labor markets.

Market Research Analyst

The data provided by Redfin underscores not only the affordability challenges but also the regional market variations that are central to understanding the real estate sector. The Texas market, for instance, shows a relatively smaller increase in the income needed to afford a home, which can be attributed to increased housing supply. This is a positive sign for the real estate market in Texas, indicating a possible balance between supply and demand.

Conversely, markets in California and Florida have experienced significant price surges, necessitating much higher incomes to afford homes. These trends are essential for real estate developers, investors and policymakers to consider, as they could lead to adjustments in future housing developments, zoning laws and affordability programs. Understanding these market-specific trends is important for stakeholders to make informed decisions.

Financial Analyst

The report's implications extend to the financial sector, particularly in the context of mortgage rates and their influence on home affordability. The expectation that mortgage rates may decline by the end of the year could provide a slight relief for potential homebuyers. However, the persistent rise in home prices, despite a potential easing of mortgage rates, may continue to pose challenges for the housing market.

For investors, the trends highlighted in the report could inform investment strategies related to real estate investment trusts (REITs), homebuilding companies and mortgage lenders. The affordability crisis may also impact consumer confidence and spending, which are significant indicators for stock market performance. A cautious approach may be warranted, as the long-term effects of affordability issues on the housing market and broader economy remain uncertain.

Buyers need to earn $114,000 to afford the typical U.S. home—35% more than the typical household makes. But that’s an improvement from October, when buyers needed to earn a record $121,000—51% more than the median household income.

SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — The typical U.S. household earns $29,448 less than it needs to afford the median-priced home, according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage.

While that’s a sign of a major housing affordability crisis, it marks an improvement from October, when the typical household earned a record $40,810 less than it needed as mortgage rates hit the highest level in 23 years.

That’s based on a Redfin analysis of the estimated median U.S. household income and median monthly housing payments as of February 2024.

Buyers needed to earn an annual income of $113,520 to afford the median-priced U.S. home in February ($412,778). That’s 35% more than the $84,072 median household income.

In October, when the mismatch between median income and the income needed to afford a home was highest, homebuyers needed to earn $120,500 to afford the typical home. That was a record 51% more than the $79,689 earned by the typical household.

February 2021 was the last month on record when the typical household earned more than it needed to afford the median priced home. Back then, the median household income was $69,021—6% higher than the $65,292 needed to afford the typical home.

“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,” said Redfin Senior Economist Elijah de la Campa. “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.”

Home sales fell to the lowest level in roughly three decades last year as elevated mortgage rates pushed homeownership out of reach for many Americans—especially first-time buyers, who haven’t built up equity from the sale of a previous home. Many Americans remain priced out of homeownership because rates remain elevated, and home prices continue climbing (they rose 7% year over year in February) due to a shortage of homes for sale.

Housing Affordability Remains Near Historic Lows as Housing Costs Grow Twice as Fast as Incomes

The $113,520 income needed to afford the median priced home in February was up 12% from a year earlier—the biggest annual gain since August—and still wasn’t far below October’s all-time high. It was up 39% from February 2022 and up 74% from February 2021, when mortgage rates were near their all-time low of 2.65%.

Affordability is strained today because housing costs are rising much faster than incomes. The median household income has increased 6% over the last year, half as much as the income needed to afford the median-priced home.

The median monthly housing payment for homebuyers was $2,838 in February, down from a record high of $3,012 in October but up 12% year over year.

Metros with smallest increases in income needed to afford a home

In San Antonio, homebuyers in February needed to earn 1% more than a year earlier to afford the typical home—the smallest increase among the metros Redfin analyzed. Next came Detroit (3%), Austin, TX (4%), Fort Worth, TX (5%) and San Francisco (6%).

Home prices in Texas are soft, which is why many metros in the Lone Star State are seeing relatively small gains in the income needed to afford a home. The median home sale price in San Antonio fell 4% year over year in February, making it the only major metro that posted a decline. And prices in Fort Worth and Austin were up by less than 1%, making them some of the smallest gainers in the nation.

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. Housing supply in Fort Worth jumped 14% year over year in February, one of the biggest increases in the U.S. 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.

Metros with largest increases in income needed to afford a home

In Anaheim, CA, homebuyers in February needed to earn 20% more than a year earlier to afford the typical home—the biggest jump in the nation. Next came West Palm Beach, FL (18%), Fort Lauderdale, FL (18%), New Brunswick, NJ (18%) and San Diego (17%).

These metros have seen some of the biggest jumps in home prices, which is driving up the income needed to afford a home. Anaheim, the third most expensive homebuying market in the country, saw its median sale price surge 16% year over year in February—the second largest increase in the nation. West Palm Beach and Fort Lauderdale ranked third and fourth, both posting price increases of 13%.

There are 13 major metros where homebuyers can afford the typical home while making less than six figures

In Detroit, the typical household needed to earn $46,168 to afford the median priced home in February, making it the most affordable market in the country. It was followed by Cleveland ($58,186), Pittsburgh ($61,603), St. Louis ($66,755) and Philadelphia ($73,182). The other metros where homebuyers making less than $100,000 can afford the typical home are: Indianapolis, Warren, MI, Cincinnati, Milwaukee, Kansas City, MO, Virginia Beach, VA, San Antonio and Columbus, OH.

There are 11 major metros where homebuyers make more than they need to afford a home

The typical Detroit household earns $64,018, or 39% more than the $46,168 needed to afford the $165,000 median priced home. Next comes Pittsburgh, where the typical household earns 30% more than it needs to afford a home, followed by Cleveland (29%), St. Louis (29%) and Warren (21%). The other metros where the typical household earns more than it needs to afford a home are: Indianapolis (11%), Cincinnati (20%), Baltimore (9%), Milwaukee (5%), Kansas City (4%) and Minneapolis (4%).

There are seven metros where the typical household earns over 50% less than it needs to afford a home

In Los Angeles, the typical household earns $93,315, or 60% less than the $236,079 needed to afford the $874,800 median priced home. The other metros where the typical household earns over 50% less than needed to afford a home are: Anaheim (58% less), San Francisco (58%), San Jose, CA (55%), San Diego (55%), New York (52%) and Miami (51%).

To view the full report, including charts and methodology, please visit:
https://www.redfin.com/news/income-needed-to-afford-home-february-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/20240326867757/en/

Redfin Journalist Services:

Ally Braun, 206-588-6863

press@redfin.com

Source: Redfin

FAQ

How much do buyers need to earn to afford the typical U.S. home according to Redfin's report?

Buyers need to earn $114,000 to afford the typical U.S. home, which is 35% more than the median household income.

What was the income needed to afford a home in October according to Redfin's report?

In October, buyers needed to earn a record $121,000 to afford the typical home, which was 51% more than the median household income.

What is the expected impact of decreasing mortgage rates according to Redfin's report?

Decreasing mortgage rates are expected to make homebuying more affordable and encourage buyers to enter the market.

Which metros saw the smallest increases in income needed to afford a home according to Redfin's report?

Metros like San Antonio, Detroit, Austin, Fort Worth, and San Francisco saw the smallest increases in income needed to afford a home.

Which metros experienced the largest increases in income needed to afford a home according to Redfin's report?

Metros like Anaheim, West Palm Beach, Fort Lauderdale, New Brunswick, and San Diego experienced the largest increases in income needed to afford a home.

In which major metros can homebuyers afford the typical home while making less than six figures according to Redfin's report?

Detroit, Cleveland, Pittsburgh, St. Louis, and Philadelphia are some of the major metros where homebuyers making less than $100,000 can afford the typical home.

How many major metros have homebuyers earning more than they need to afford a home according to Redfin's report?

There are 11 major metros where the typical household earns more than it needs to afford a home.

Which metros have the typical household earning over 50% less than needed to afford a home according to Redfin's report?

Los Angeles, Anaheim, San Francisco, San Jose, San Diego, New York, and Miami are some of the metros where the typical household earns over 50% less than needed to afford a home.