To Afford a Home in the U.S., You Need an Income of $108,000

A household now needs to earn $107,700 annually to afford a new single-family home, including property taxes and insurance, according to a recent Oxford Economics report. This marks a sharp increase from 2019, when the required income was just $56,800. The report paints a stark picture of the growing affordability crisis, showing that only 36% of U.S. households earn enough to afford a new home today, down from 59% five years ago.

The dramatic shift in housing affordability is largely due to the disruptions caused by the COVID-19 pandemic. During the height of the pandemic, many Americans sought larger homes, contributing to a housing shortage. This, coupled with heightened demand, led to soaring home prices in cities across the U.S.

Among the least affordable markets, San Jose, California, stands out, with a median home price of $1.89 million in the third quarter of 2024. To afford a home in this city, a household would need an annual income of $461,000. Other California cities, including San Francisco, Los Angeles, and San Diego, also rank poorly in terms of affordability. In contrast, cities in the Midwest such as Cleveland, Louisville, Detroit, and St. Louis are more affordable, with the income required to afford a home ranging from $64,600 to $75,300.

The report also notes a significant drop in home affordability in states like Florida, Arizona, and South Carolina, where rising demand from senior populations has put pressure on the housing market.

A key driver behind the crisis is rising mortgage rates. While home prices have climbed across the U.S., mortgage rates have had an even more substantial impact on affordability. The average rate on a 30-year fixed mortgage nearly doubled from 3.7% in the third quarter of 2019 to a peak of 7.3% in the fourth quarter of 2023. Although rates have since decreased slightly, they remain significantly higher than in previous years, making monthly mortgage payments unaffordable for many.

The situation highlights the growing challenge for Americans trying to enter the housing market, particularly with higher mortgage rates and inflated property prices. It also points to a widening gap in homeownership opportunities, with only a small percentage of households able to meet the financial demands of today’s real estate market.