According to a new Zillow report, buyers today must earn more than $106,000 in order to comfortably purchase a home.
That represents an 80% increase from January 2020, illustrating how the the market has shifted in favor of prospective homeowners, who are increasingly “house hacking” or working with friends and relatives to become homeowners.
Key Findings:
- Those shopping for homes today need to make more than $106,000 a year to comfortably afford a home.
- A mortgage payment on a typical U.S. home has nearly doubled since 2020.
- Pittsburgh, Memphis, and Cleveland are the most affordable markets. Households in California need to make the most money to afford a home.
A household with an annual salary of $59,000 could afford a typical U.S. home’s monthly mortgage in 2020, provided it put down 10% of the total and spent no more than 30% of its income. This was less than the $66,000 median income in the United States, indicating that over half of all American households could afford to become homeowners.
Today, the approximate $106,500 required to comfortably afford a normal home is significantly more than the $81,000 annual income that the average U.S. household makes.
“Housing costs have soared over the past four years as drastic hikes in home prices, mortgage rates and rent growth far outpaced wage gains,” said Orphe Divounguy, a Senior Economist at Zillow. “Buyers are getting creative to make a purchase pencil out, and long-distance movers are targeting less expensive and less competitive metros. Mortgage rates easing down has helped some, but the key to improving affordability long term is to build more homes.”
Since January 2020, the average monthly mortgage payment for a property in the U.S. has increased by about 96.4% to $2,188—assuming a 10% down payment. In that time, home values have increased 42.4%, with the average US home currently valued at $343,000. For most households that could afford a down payment, the cost of a home remained accessible with mortgage rates close to 3.5% as of January 2020. Approximately 6.6% was the mortgage rate at the time of this analysis.
A household earning the median salary would need to save for a down payment of 10% on a typical U.S. home for around 8.5 years, which is approximately one year longer than in 2020.
With the escalating cost of a mortgage, the majority of Gen Z and millennial purchasers believe that “house hacking”—the option to rent out all or part of a property for additional income—is crucial. Another strategy to help with affordability is to co-buy; 21% of buyers from the previous year reported doing this. This can be done with a friend or relative.
The metro areas in Pittsburgh ($58,232 income required to acquire a home), Memphis ($69,976), Cleveland ($70,810), New Orleans ($74,048), and Birmingham, AL ($74,338) are those where a buyer may comfortably afford a conventional home with the lowest income.
Pittsburgh, St. Louis, and Detroit are the only three large metro areas where a typical home is within the means of a household earning the median salary.
Among the major metro areas, there are seven markets where a household’s income is required to be at least $200,000 in order to afford a typical home: San Jose ($454,296), San Francisco ($339,864), Los Angeles ($279,250), and San Diego ($273,613) are the top four cities in California.
The remaining spots on the list are Boston ($205,253), Seattle ($213,984), and the New York City metro area ($213,615).
To read the full report, including more data, charts, and methodology, click here.
