In many U.S. cities, purchasing a home now requires a six-figure salary.
According to a recent report from Oxford Economics, a household needed to earn $107,700 in the third quarter of this year to afford a new single-family home, including property taxes and insurance costs. This is nearly double the $56,800 required in 2019.
The report underscores how difficult it has become, in just a few years, for Americans to afford a new home.
Only 36% of U.S. households earned enough to buy a new home in Q3 2024, compared to 59% in Q3 2019.
The housing market’s steep challenges can be traced back to the disruptions of the 2020 pandemic.
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As the economy shifted, many Americans sought larger homes, exacerbating the housing shortage. Increased demand and limited supply led to fierce competition, pushing home prices higher across the country.
The report also shows that home prices rose in every U.S. city, though affordability varied significantly by location.
In San Jose, California, the least affordable metro, the median home price reached $1.89 million in Q3 2024, with an income of $461,000 required to afford it.
Other California cities, such as San Francisco, Los Angeles, and San Diego, also ranked among the least affordable.
On the other hand, cities in the Midwest and surrounding areas, like Cleveland, Louisville, Detroit, and St. Louis, were more affordable.
In these cities, a household income between $64,600 and $75,300 was sufficient to cover housing costs.
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Oxford Economics defines home affordability as a situation where monthly payments for a home do not exceed 28% of a household’s income.
Cities in Florida, Arizona, and South Carolina, which have seen large influxes of retirees, have experienced some of the steepest declines in home affordability over the past five years.
A major factor driving the affordability crisis is rising mortgage rates.
“While home prices increased in every metro, the rise in mortgage rates eroded affordability more significantly as rates nearly doubled from 3.7% in Q3 2019 to a high of 7.3% in Q4 2023,” said Barbara Denham, a senior economist at Oxford Economics.
Mortgage rates spiked in 2022 and 2023 as the Federal Reserve raised interest rates to combat inflation.
While rates have come down since last year’s peak, the average rate on a standard 30-year fixed mortgage was still 6.79% last week—well above levels seen between 2008 and 2022. This has added significantly to monthly home payments, making it even harder for many Americans to afford a new home.
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