Buying a house in 2023? Here’s how much is needed to afford the typical US home
Mortgage rates remain close to 8%
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With high borrowing costs and steep home prices, potential buyers need to make at least $114,627 to afford a median-priced home in the U.S. That's a new record.
It marks the highest annual income households have ever needed to buy a home, and is about $40,000 more than what the typical American household pulls in annually, according to a recent report from real estate brokerage Redfin.
In 2022, the typical median household income in 2022 was roughly $75,000, the brokerage reported.
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The income needed to buy a home today is up 15% from a year ago, but it's more than 50% higher since the start of the COVID-19 pandemic, the data showed.
Chen Zhao, Redfin's economics research lead, said that in an ideal world, rising mortgage rates would hinder demand and subsequently lower home prices far enough to make up for high interest payments.
A home for sale through the Redfin brokerage. (Photo by Stephen Brashear/Getty Images for Redfin / Getty Images)
"But that’s not what’s happening now: Although new listings are ticking up slightly, inventory is still near record lows as homeowners hang onto their low mortgage rates – and that’s propping up prices," said Zhao.
It's unsurprising that homeowners are staying put. As of June, more than 91% of U.S. mortgaged homeowners had a rate below 6%, the brokerage previously reported.
A house is for sale in Arlington, Virginia, on July 13, 2023. (SAUL LOEB/AFP via Getty Images / Getty Images)
The rate on the 30-year fixed mortgage climbed to 7.63% on Thursday, Freddie Mac reported, the highest level in over two decades.
It's a far cry from when rates were 3.22% in January 2022.
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Although average U.S. hourly wage has increased by about 5% over the last year it hasn't kept pace with the income necessary to afford a home, Redfin said.
Zhao said buyers who need to move can find some reprieve when looking into condos or townhouses because they are less expensive than single-family homes. They can also consider moving to a more affordable suburb, which will take some pressure off their wallets.