October 21st 2023.
A new report released by Redfin this week has revealed that prospective homebuyers need to make $114,627 annually to purchase a moderate-priced home. This is a significant 15% increase from last year and a whopping 50% increase since the start of the pandemic.
Mortgage rates have been the major contributing factor to the increase in home prices. The average mortgage rate has hit 8% on Oct. 18, which is a 5% increase since last year. Monthly mortgage payments have also reached an all-time high of $2,800 and as of July, one-fourth of mortgage payers were paying more than $3,000 monthly.
Given that the average monthly earnings of U.S. households are $4,654, according to CEIC data, Americans are now spending more than 60 percent of their earnings on mortgage payments. Redfin's Economics Research Lead Chen Zhao noted that although demand for homes is increasing slightly, the low inventory of homes is propping up prices. Zhao suggested prospective homebuyers look for less expensive options such as condos and townhouses or consider moving to a suburb or more affordable part of the country.
Unfortunately, renters are not faring much better. New York, Chicago, and Los Angeles have seen staggering increases in rent prices. For instance, in Manhattan, the average monthly rent is $4,400, meaning renters would need to earn approximately $176,000 annually just to qualify.
Daryl Fairweather, Redfin’s chief economist, told Fortune that in most metro areas, renting is more affordable than borrowing to buy a home. The only four major markets where it is less expensive to buy than to rent are Detroit, Philadelphia, Cleveland, and Houston.
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