Real Estate Settlement: Impact for buyers & sellers
Real estate developer Uri Man shares insight to how this settlement is shaking up the entire housing market
New data shows that the average first-time home buyer must earn more than six figures to comfortably afford a median-priced home.
Clever, a real estate data company, analyzed median home prices and median incomes for 50 metro areas to find out how much yearly income a person needs to earn to afford a house in 2024.
With 10% down, a 30-year-mortgage, and an interest rate of 7.22%, Clever's analysis showed first-time buyers must earn $119,769 to comfortably afford a median-priced home ($332,494). This is about $45,000 more than the typical household earns each year.
When comparing a 20% down payment, Clever found that the median-priced home is affordable for the median earner in only six of the country's 50 largest metros and that 61% of Americans cannot afford a median-priced home, even after a 20% down payment.
Los Angeles is least affordable city for home buyers
For one's home to be considered affordable, the company used the 28/36 rule on housing – that a household should spend no more than 28% of its gross monthly income on housing, while using an additional 8% to pay off debts.
A "For Sale" sign outside of a home in Atlanta, Georgia, US, on Friday, Feb. 17, 2023. (Credit: Dustin Chambers/Bloomberg via Getty Images)
The data found that the median home sale price in Los Angeles is $897,173, and the annual mortgage payment on the median home is $69,852.
This means Los Angeles residents need an annual income of $249,471 to comfortably afford a median home, but only make $87,743 – a staggering $161,728 less than needed.
Statewide, the findings found that California is also the least affordable state for the average home buyer. According to the data, a median home in California sells for $798,854. After a 20% down payment, the monthly mortgage payment costs about $5,183, or $62,197 annually.
To comfortably afford that mortgage, a household must bring in about $222,132 annually. Yet, the median household in the state earns $91,551 – only about 41% of the income required to afford the home.
The least affordable U.S. metros for buying a home (based on 20% down payment):
- Los Angeles: $897,173 median home price,$249,471 income needed
- San Jose: $1,455,442 median home price,$404,705 income needed
- San Diego: $849,359 median home price, $236,175 income needed
- San Francisco: $1,088,519 median home price, $302,677 income needed
- New York City: $568,905 median home price, $175,153 income needed
Six cities considered affordable for median-income households
With a 20% down payment, only six metro areas are affordable for the median earner, the data revealed.
Pittsburgh was found to be the most affordable city for home buyers.
RELATED: Whopping 78% of aspiring homeowners say they can’t afford the American dream
In Pittsburgh, the median home sells for $199,573. After a 20% down payment, the mortgage payment, which includes taxes and insurance, costs $1,398 per month, or $16,777 per year, based on a 30-year mortgage.
To afford that mortgage without exceeding 28% of one's income, a household would need to earn about $59,919 per year. The median household income in Pittsburgh is $70,607, meaning it's possible to comfortably afford a median-priced home there.
The most affordable U.S. metros for buying a home (based on 20% down payment):
- Pittsburgh, Pennsylvania: $199,573 median home price,$59,919 income needed
- Cleveland, Ohio: $182,652 median home price,$56,378 income needed
- St. Louis, Missouri: $225,674 median home price,$66,743 income needed
- Memphis, Tennessee: $213,929 median home price,$61,659 income needed
- Indianapolis, Indiana: $257,584 median home price,$73,398 income needed
- Birmingham, Alabama: $235,212 median home price,$65,216 income needed
How can I afford a house?
According to the data, for a median-income earner to comfortably afford a median-priced home, they would need an average down payment of 45%.
Experts often recommend would-be buyers put down at least 20% when purchasing a home to lower monthly payments and avoid paying extra for private mortgage insurance. However, that goal has become less attainable over time.
Real estate outlook: Buying a home in 2024
Is 2024 a good time to buy a house? New York City real estate expert and agent Frances Katzen explains.
Today, the median buyer puts down 15% of a home's purchase price. The typical repeat buyer puts down 19%, while new buyers put down 8%. The last year that the median buyer put down 20% was in 1989, according to NAR data.
Clever said if mortgage rates dropped to 2.5% tomorrow, the same household would be able to afford a home that cost $300,000 — underscoring the impact of high mortgage rates on affordability.
RELATED: House flipping down nearly 30% as profits drop, data reveals
But real estate experts warn against waiting for interest rates to decline before purchasing a house, as home prices on-average will continue to increase in value.
This story was reported from Los Angeles.
