Housing costs in the U.S. are surpassing median household incomes, making it difficult for potential homebuyers to afford a home. According to Redfin, the typical household would need to earn $113,520 annually to afford the median home, which is 35% more than the average household income of $84,072. Affordability has worsened since the pandemic, with the average household falling short $29,448 to afford a home in February 2024. This deficit peaked in October 2023 when mortgage rates were at their highest, driving up home prices due to an inventory shortage.
The affordability deficit has narrowed since October 2023 as mortgage rates have declined. Home prices remain high, with the median sale price at $412,778 in February 2024. Amidst this challenging market, potential buyers are cautious and holding off on purchasing. Layoffs in the technology sector have impacted some buyers’ confidence, leading them to consider factors like emergency savings and job security before committing to a mortgage. Experts advise price-sensitive buyers to consider starter homes, which are more affordable and make financial sense for those with lower incomes.
Starter homes are becoming scarce as builders have shifted away from constructing entry-level properties in recent years. In more affordable markets such as Detroit, Cleveland, Pittsburgh, St. Louis, and Philadelphia, buyers with incomes below six figures may still be able to afford a home. Overall, experts predict that borrowing costs will decrease as the Federal Reserve reduces interest rates and home price growth may soften as inventory increases. New listings have seen a 5% increase, suggesting a potential shift in the market, though it is advised to take this with caution as conditions may evolve unpredictably.
Despite the potential for improved affordability with lower rates and increased supply, the housing market is unlikely to see a drastic change in the near future. Buyers are encouraged to act now if they are financially prepared, as conditions may not improve significantly. While there is optimism for a more balanced market with lower rates and more inventory, it is important to remain realistic about the overall affordability challenges that buyers continue to face. The housing market is dynamic and subject to various economic factors, making it essential for potential buyers to carefully weigh their options and make informed decisions based on their financial circumstances.
