At this point, it is well known that many Americans have difficulty affording new homes. In fact, the real estate market has become so challenging that even existing homeowners can sympathize, as many say they couldn’t afford their home if they were to buy it today.
In a new survey, nearly 2 in 5 homeowners say they couldn’t afford their home at today’s prices. And while this might be a good thing for homeowners for whom real estate is a store of value, it also speaks to the state of the market that buyers find themselves in now.
According to survey results released Tuesday by real estate firm Redfin, 38% of homeowners say they probably or definitely couldn’t afford to buy the homes they live in at today’s prices. Most homeowners surveyed have owned their homes for at least five years.
For reference, the median sales price of a home at the start of 2019 was $313,000. By the end of 2023, the most recent date for which the Federal Reserve Bank of St. Louis has data, the average sales price had increased by more than $100,000 to $417,700.
Over the last decade, the real estate market has experienced explosive growth. Historic low interest rates at the start of the pandemic allowed many homebuyers the opportunity to purchase a home with mortgage rates below 3%; however, post-COVID-19 inflation has led the Federal Reserve to get involved. Eleven consecutive times they have indirectly caused mortgage rates to rise and homeownership to decline, kicking off an inventory crisis.
Interest rates are now supposedly at their peak, but Fed officials have not yet clarified the timing of their first cut. Meanwhile, the much higher mortgage rates, near 8%, plaguing the housing market right now are likely to remain.
At the same time as mortgage rates turned rapidly, home values soared.
According to Redfin, home sales prices have doubled over the past 10 years and are up about 50% since 2019. Not only do potential buyers have to overcome the barrier of high mortgage interest, but they also have to contend with home prices homes that remain close to the record. tall. This reality is also unlikely to reverse anytime soon, with the Fed continuing to push back its first rate cut and Fannie Mae forecasting home price increases of 4.8% by the end of 2024.
First-time homebuyers need a salary of $120,000 to afford a home
As the cost of buying a home increases, first-time buyers need a six-figure salary to purchase the average home. Research released Monday by real estate firm Clever finds that with a 10% down payment, buyers need to earn nearly $120,000 to afford a median-priced home.
The company explains that most first-time buyers today pay less than 10% down payment on a home, compared to the average 19% down payment made by repeat buyers. To comfortably afford a median-priced home, a first-time buyer paying 10% down with a mortgage rate of 7.2% (the current 30-year mortgage rate) must earn an income of $119,769 per year .
But even with a 20% down payment, which would lower the monthly cost, the average American is still unable to afford a home in most places. Middle income earners – those earning $74,755 – paying 20% of a home’s value can comfortably purchase homes in only four U.S. states and six of the 50 largest cities.
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