If you’re struggling to find an affordable home, it’s not just you. A new analysis of Realtor.com data from Bankrate showed that 75% of homes on the U.S. housing market are unaffordable to the typical household.
How did we get here? Is it possible to climb out of the unaffordability hole?
The situation
According to Bankrate, the typical American household needs to make at least $33,000 more annually to be able to afford a median-priced house. In most major metros, a six-figure income is needed to buy a typical home.
Meanwhile, Claritas estimates of U.S. Census Bureau data indicates that the average household in the U.S. earns $80,000. To afford a $435,000 median-priced home this July according to Redfin), they would need to make $113,000. In some cities – including Seattle, Wash.; San Francisco, Calif.; and New York, N.Y. – they would need to make around $200,000, according to Bankrate’s analysis.
Even some housing markets that Bankrate said have “long been considered affordable,” – including Philadelphia, Pa.; San Antonio, Texas, and Charlotte, N.C. – have under 30% of listings that are affordable to the typical household. Julia Sheers, a 29-year-old looking to buy a home with her boyfriend in Charlotte, said she is having a hard time finding a home that fits in their budget, per Bankrate.
“If you told me a year or two ago that I’d be spending half a million dollars on a house, I would’ve thought you were crazy,” Sheers said. “But now it’s like, ‘Oh, that’s not bad. That’s a good price.’ Everything is definitely really expensive.”
How we got here
There are several factors that are contributing to the particularly unbalanced situation we see today and they generally started around the time of the Great Recession that started in 2008. Since that time, builders haven’t kept up with housing demand, Bankrate noted. Experts frequently point to low supply, a deficit estimated at 4.7 million homes, as a key factor in high home prices.
Then came the COVID-19 pandemic with multiple impacts. During the height of the pandemic from 2020 through 2022, ultra-low mortgage rates fueled a buying frenzy – for those who were able to afford it amid temporary layoffs and business closures. With this frenzy, prices climbed high.
Prices stayed high as the nation saw the steepest rise in mortgage rates in two decades. COVID-19 also caused supply chain issues and kicked off a period of inflation that we continue to deal with today. That’s made building materials become more expensive, as well as labor.
At the same time, institutional investors (large companies that buy large swaths of housing inventory to flip or rent for profit) purchased 14.8% of homes on the market in the first quarter of last year. According to Bankrate and Realtor.com, that is a record-high percentage.
“The number of homes these companies are able to purchase can greatly reduce the available supply in a given area, especially for affordable starter homes, making it even harder for regular buyers to buy a house and compete,” said Bankrate. Even renters can feel the pressure from these purchases as intuitional investors drive up rental prices.
Wages haven’t kept up with rising housing prices. While a wide body of research cited by Bankrate shows average home prices are up roughly 50% across the country since 2020, it noted that wages have grown just 22% since the start of 2021. Bankrate’s analysis of Bureau of Labor Statistics data provided that figure.
Home insurance costs and property taxes have also increased by double digits across the country in recent years and dated zoning regulations can slow down new construction. Altogether, the pressures have pushed the median age of the first-time homebuyer to 40 years old, an all-time high, according to the National Association of Realtors.
“The American dream – to the extent that it involves buying a home and raising your family – has become a lot tougher,” said Chen Zhao, head of economics research at Redfin. Zhao also said that those who are able to buy homes often get help from family.
What’s the outlook?
“Housing experts across the board seem to agree: The affordability crisis in the housing market isn’t going away anytime soon,” said Bankrate.
However, this forecast isn’t just tough for prospective homebuyers to hear. The U.S. Chamber of Commerce said that addressing the shortage is actually necessary to support long-term economic growth for the nation.
“It’s a significant burden on the broader economy,” the organization explained. “This shortfall has cost states billions in economic output, personal income, and jobs.”
Next year should be more balanced than this year, Realtor.com forecasts.
It predicts home price growth to steady and a slight drop in mortgage rates. Still, wage growth and new construction are key to turning things around for buyers.
Realtor.com said this March that inventory has improved since a low in January 2022, but not enough to meet demand. President Donald Trump has also pledged to improve home affordability, Newsweek reported in September.