If you have a child or grandchild trying to buy their first home right now, you already know it feels nearly impossible. A new report from Redfin puts some hard numbers behind that feeling.
As of June, a household needs to earn $109,796 a year to comfortably afford the typical home on the market. The typical American household earns $87,599. That leaves a gap of more than $22,000.
How Did We Get Here?
Home prices surged in 2022 and 2023, driven by strong demand after the pandemic. At the same time, mortgage rates roughly doubled as the Federal Reserve raised interest rates to fight inflation. Those two forces hit buyers at once.
The income needed to buy a home peaked at $110,382 last year. It has edged down just 0.5% since then, to $109,796 in June. That is progress, but it is slow.
Things Are Improving Slowly
A year ago, the average household was $26,125 short of what they needed to buy. Two years ago, that gap was even wider at $28,834. Redfin says income growth has been outpacing the rise in housing costs, which is why the gap is narrowing.
Compared with last June, the median home sale price rose 2.2%. Mortgage rates dipped slightly into the mid-6% range. And median household income rose 4%. That combination is moving things in the right direction.
Redfin senior economist Yingqi Xu put it plainly:
“The earnings needed to buy a house have stabilized after several years of deterioration, but that doesn’t mean homes are affordable to the average American. There’s still a double-digit gap between what the typical household earns and what they need to comfortably buy a home, leaving many prospective first-time buyers stalled on the sidelines. But even if the market isn’t becoming much more affordable, it is becoming a bit more manageable for house hunters.”
The Share of Affordable Listings Is Still Very Low
Redfin defines an affordable listing as one where the mortgage payment takes up no more than 30% of monthly income. By that measure, 34% of homes on the market were affordable in June. That is up from 31% a year ago.
But here is the sobering context: before the 2022 rate surge, more than half of all U.S. home listings cleared that affordability bar almost every single month, going back to at least 2013.
Which Cities Are Getting More Affordable?
Redfin looked at 46 metro areas and found affordability improving in 24 of them. Seattle had the biggest improvement. The income needed to buy the median-priced home there fell 7.4%, down to $221,831. San Jose came in second, with a 6.5% drop to $423,840. Portland was third, down 4.5% to $153,844.
That said, those cities are still very expensive. In San Jose, for instance, the median household income is $176,401, about $250,000 less than what is needed to afford a typical home there.
Three Cities Where the Math Actually Works
Redfin found just three metro areas in the entire country where the typical household earns enough to afford the median-priced home: St. Louis, Indianapolis, and Pittsburgh.
If you have family members weighing where to put down roots, those three cities may be worth a closer look.
