Buyers Need an Additional $50K to Achieve Homeownership

by Rafael Pena

March 4, 2024

The dream of homeownership has become even more elusive.

The dream of homeownership has become even more elusive. Prospective buyers now require an average income of $106,000—approximately $50,000 more than pre-pandemic levels—to comfortably afford a home, according to a Feb. 29 Zillow report.

The once favorable sub-3% mortgage rates that emerged during the pandemic, enabling younger potential homeowners and lower-income buyers to enter the housing market, were short-lived. In 2022 and 2023, mortgage rates and home prices soared, reaching an alarming peak of 8% in October 2023.

This drastic shift created an intensely strained market, causing existing homeowners to cling to their properties amid fears of higher mortgage rates while new buyers found homeownership increasingly out of reach.

“Comfortably affording a home in today’s market means having the financial capacity to cover mortgage payments, property taxes, insurance, and other associated costs without significant financial strain,” Stacy Brown, director of technical training at Real Property Management, told Fortune.

According to Zillow, buyers now need an average annual income of $106,000, an 80% increase from January 2020, to afford a home. Monthly mortgage payments for a “typical home,” valued at $343,000, have nearly doubled since then, reaching $2,188 with a 10% down payment.

The surge in home prices, rising nearly 43% since January 2020, and the increase in mortgage rates from 3.5% to today’s 7.1% contribute significantly to the challenges of affordability. Compounded by stagnant wage growth, the gap between income levels and housing costs has widened, making homeownership more elusive for many Americans.

Filippo Incorvaia, owner and broker at FI Real Estate, observed that housing affordability feels more intense than at any point in his 20-year career. “Six-figure incomes are essential to affording a home today. Purchasing a property alone is more challenging than ever.”

The trend of “house hacking,” where individuals or couples co-buy properties with friends or family and rent out parts to generate extra income, has gained popularity. However, this solution comes with downsides, including reduced equity and long-term viability concerns.

As the struggle for affordable homeownership persists, many potential homebuyers, particularly those in their 20s, are delaying their dreams while others explore alternative solutions to navigate the challenging housing market.

RELATED CONTENT: Study: Single Women Are Owning More Homes In These States