For the majority of households, purchasing a home has become somewhat unaffordable in this economic climate.
According to the Census Bureau, the median household income in the U.S. is about $80,000 a year. But a new report on the mortgage market from credit technology company Maxwell says the median income of a homebuyer is now $96,000.
The gap has been growing for years.
Not only does the average homebuyer earn more, they’re older and making larger down payments. All of that points to one truth, says Jessica Lautz, an economist with the National Association of Realtors.
“Housing affordability is actually at its worst in four decades,” Lautz said.
And two things make the problem worse:
“Both housing prices and mortgage rates are making it very unaffordable for the average American to own a home,” Lautz said.
And the amount potential homebuyers need is rising faster than average income, said Redfin chief economist Daryl Fairweather.
“I think we’ve been moving toward a more upper-middle-class home for a long time now,” Fairweather said.
Four years ago, when housing was more affordable during the pandemic, 45 percent of homes were affordable for a household with the local median income, she says. Now that number is only 16 percent.
“That’s a big gap,” Fairweather said. “It basically means that you can’t afford to own a home in America, even if you’re firmly in the middle class.”
And even if the Fed cuts rates next month, the relief will be temporary because of a larger problem, said John Paasonen, CEO and co-founder of credit technology company Maxell, which published the report.
“We have seen significant understocking in this country over the last decade,” said Paasonen. “And therefore there is a significant shortage of supply.”
Paasonen added that low interest rates would lead to more demand, and more demand without more supply would mean higher prices.
“Because now I’m not getting two offers for my house, I’m getting five,” said Paasonen. “I’m getting ten offers for my house. And that will only exacerbate the affordability challenge.”
As far as tips go, there is no magic formula: pay off your debts, scrape together some savings. Paasonen advised buying something soon, no matter how small or cheap, to start building wealth.
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