Americans need to earn $116,633 per year to afford the median priced home for sale, 81.8% more than the $64,160 needed to afford the typical apartment for rent, according to a report from Redfin.
That’s up from the $110,808 annual salary needed last year to afford homeownership and up from the $101,341 annual salary needed two years ago.
Redfin considers a home affordable if a buyer taking out a mortgage spends no more than 30% of their income on their monthly housing payment.
The reason for the widening gap is simple: The cost of buying a home is rising faster than the cost of renting.
In addition, home prices have increased to record highs: The median home-sale price rose 4.5% year over year to $423,892 in February, and has been growing at roughly that pace for months.
What’s more, the average 30-year-fixed mortgage rate is hovering above 6.5%—more than double the record low hit during the pandemic.
Although wages have crept up, they have not kept pace with the rate of inflation and the impact higher mortgage rates have had on homeownership.
The typical U.S. household has an estimated annual income of $86,382—roughly $30,000 less than the income required to afford the typical home for sale.
Meanwhile, rents have stabilized below their record high because of an influx of newly-built apartments ushered in by the pandemic construction boom.
This has given renters more options and has made it harder for landlords to boost rents.
“It has become increasingly challenging for American renters to make the shift to homeownership thanks to the triple whammy of rising home prices, high mortgage rates and a shortage of houses for sale,” says Elijah de la Campa, senior economist for Redfin, in the report. “The gap between what someone must earn to buy versus rent may shrink in the coming months, but only because rents are expected to rise as the number of new apartments hitting the market tapers off due to a construction slowdown.”
Cities that have seen the biggest jumps in homebuying premiums include Salt Lake City, Utah, and Austin, Texas.
Salt Lake City, Utah, saw the biggest jump in homebuying premiums: In that market, someone needs an annual income of $140,412 to afford the typical home for sale, Redfin says. That’s 134% more than they need to afford the typical rental.
By comparison, they only would have needed to earn 106% more last February. That 28-percentage-point increase is the largest increase among the 42 core-based statistical areas (CBSAs) Redfin analyzed.
Next came Austin, Texas (+24.6 ppts to 143%), San Diego (+21.7 ppts to 127%), New York (+20.7 ppts to 76%) and Los Angeles (+20.7 ppts to 141%).
In most of these places, asking rents are falling while home prices are rising, which is why the gap is widening.
Photo: Peter Thomas
