American families earning $75,000 - $100,000 annually can't afford nearly half the homes on the market. And those families have above-average incomes.
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Home prices just hit another all-time high — and that means even more Americans are losing purchasing power.
According to Realtor.com, the US median listing price soared to $392,000 in February, marking a new record. During the month, home prices grew at an "unusually-fast" pace, the report said, signaling this year's spring homebuying season will be ripe with competition.
"February's new record high for the median listing price places housing affordability front and center for this year's real estate markets, especially as we gear up for the spring season," Danielle Hale, Realtor.com chief economist, told Insider.
Home prices grew at a double-digit annual pace of 12.9% in February. As the Spring homebuying season nears, this trend could continue. Rising mortgage rates, inflation and a lack of housing supply are adding pressure. For those earning around or less than US median income, this could mean they are priced out of the market before spring even blooms.
"Over the last five years, we have seen home prices break records early in the season as buyers try to get ahead of the competition," Hale said, adding that this is the first time the record has been broken in February.
Home prices have been climbing across the country but household wealth has seen little-to-no growth.
In 2020, the most recent year on record for US Census data, the median household income was $67,521, a decrease from the 2019 median of $69,560. According to the Census Bureau, this total was the first statistically significant decline in median household income since 2011. The downturn is likely attributed to the COVID-19 pandemic, which took a toll on the economy and reduced homebuyer purchasing power.
"A household earning $75,000 to less than $100,000 can [in 2022] currently afford to buy 51% of the active housing inventory," Hale said in an affordability report. "Nevertheless, that same household could afford to buy 58% of the homes for sale in 2019. Thus, during the pandemic, affordability for households in the income bracket $75,000 to less than $100,000 dropped by 7%."
During the pandemic, the poverty rate rose for families most likely to pursue homeownership — married couples with kids. At the same time, so did home prices.
Homebuyers are often advised to spend no more than 30% of their income on housing costs, but as the median listing price rises due to pressure from inflation, rates and supply, it will require households to allocate more of their wealth towards homeownership. This will be difficult for buyers earning the national US median income of $67,521 or less, which could mean for many Americans – this Spring homebuying season will be over before it even begins.
"At today's 30-year fixed rate, the buyer of a median-priced home is spending over $278 per month more than a year ago on their mortgage payment, which adds more than $3,300 to the yearly financial burden," Hale said. "At the same time, for many families, the alternative to buying a home is not necessarily more affordable, as rents have been rising at a double-digit pace over the past few months."
According to Hale, as inflation takes a larger chunk from everyone's paycheck, households will have to make difficult financial decisions this year — especially in relation to housing.
