The dream of homeownership, a powerful aspiration for many, is increasingly challenged by the financial realities of today’s housing market. The relentless upward trajectory of home prices is forcing many prospective buyers to grapple with a significant income hurdle, underscoring the urgency and importance of this issue.
A few recent studies are providing some real numbers on the long-term and seemingly unsolvable affordable housing crisis. This crisis occurs when the cost of housing is significantly higher than what most people can afford, leading to financial stress and housing instability.
On a May 1 blog post on the Realtor.com website, Snejana Farberov writes, “The income needed for a family to buy a typical home in the U.S. has surged by an eye-popping 70% over the past six years.”
Realtor.com reports the national median list price for a home in April is $431,250. Assuming a 30-year fixed-rate mortgage, a 20% down payment ($86,250), and the ‘30% rule’ (which advises spending no more than 30% of gross income on housing to maintain financial stability), a household needs to earn about $114,000 a year.
On May 5, Sami Sparber of Axios reported, based on a study published by Redfin, that, “You need an annual income of around $116,600 to afford a mid-priced home—roughly 82% more than the $64,200 needed to afford a mid-priced apartment.”
Realtor.com notes that the national household income needed to buy a median-priced home in spring 2019 was $67,000, or $47,000 less than the current estimate. The income required to afford a median home has increased by 70% in just six years. As a comparison, the most recent figures for the median income in Lake and Cook Counties are $76,000 and $72,000, respectively. The median home price in Minnesota currently hovers around $375,000 to $400,000.
Of course, many buyers opt to finance with lower down payments, like the 5% required on an FHA loan. In reality, saving over $86,000 while managing other financial responsibilities such as rent, car payments, student debt, and health insurance is a daunting challenge for most people, adding to the difficulty and pressure of homeownership.
The data here highlights the growing affordability challenges facing prospective homebuyers looking to make the North Shore home. While wages have increased, they haven’t always kept pace with the rapid appreciation of home prices and rising interest rates. Understanding the income requirements is essential for those planning and hoping to enter the property ladder as the housing market evolves.
