Buying a home just got a little bit further out of reach for the majority of households in this economy.
According to the Census Bureau, the median household income in the U.S. is around $80,000 per year, give or take. But a new report on the mortgage market from the lending technology firm Maxwell listed the median income of a home buyer as now up to $96,000.
The gap has been growing for years.
Not only is the median home buyer earning more, they’re also older and making bigger down payments. All of it points to one truth, according to Jessica Lautz, economist with the National Association of Realtors.
“Housing affordability is really towards the worst spot that we have seen it in the last four decades,” Lautz said.
And two things are making the problem worse:
“Both home prices and mortgage rates are making it very unaffordable for your typical American to be able to purchase a home,” Lautz said.
And the amount that potential home buyers need is increasing faster than the median income, said Redfin’s chief economist Daryl Fairweather.
“I think we’ve been moving towards this place of owning a home being something that is more upper middle class for a long time,” Fairweather said.
Four years ago, during a pandemic-era pocket of cheaper housing, 45% of homes were affordable to a household on the local median income, she said. Now it’s down to 16%.
“That’s a big gap,” Fairweather said. “I mean, it’s essentially saying that even if you are solidly in the middle class in America, you will not be able to buy a home.”
And even if the fed cuts interest rates next month, the relief will be temporary because of a bigger issue, said John Paasonen, CEO and co-founder of the lending technology firm Maxell, which released the report.
“What we’ve seen is, over the last decade in this country, a severe underbuilding of inventory,” Paasonen said. “And so, we have a severe lack of supply.”
Paasonen added low rates will lead to more demand, and more demand without more supply means higher prices.
“Because now, instead of getting two offers on my house, I’m getting five offers on my house,” Paasonen said. “I’m getting 10 offers on my house. And so that’s just going to exacerbate the pricing affordability challenge.”
As for tips, there isn’t a silver bullet: pay down your debt, scrape together some savings, and Paasonen said buy something, no matter how small or cheap, soon, to start accumulating wealth.
