The affordability crisis in the real estate market has reached a milestone in the first months of 2024, with experts suggesting that the average homebuyer needs an 80 percent higher income to afford the average house today versus 2020. 

Numbers published by home listing aggregate site Zillow indicate that a family needed $47,000 in household income in 2020 to afford the average home mortgage in the United States. That income requirement has risen an incredible 80 percent to more than $106,000 in just four years. Unfortunately, the average income only rose 23 percent during that same period, which severely eroded the average family’s ability to become homeowners. 

These numbers aren’t the only shocking statistics that have emerged from the real estate market in the past few years. Wages and home prices were once tightly linked, but several factors have reduced the average family’s ability to afford a home. 

Let’s take a look at the factors that have led to the unaffordability of the average home and what experts foresee regarding the future of home buying in America. 

Mortgage Payments Rise Due to Multiple Factors 

It’s not just the average price of a home that has priced out many families but the collision of high interest rates with a significant rise in home values. Mortgage interest rates have hovered somewhere between six and seven percent over the past year, meaning that homes that were once in reach of some families have become unaffordable because of the increased mortgage payments required with higher interest rates. 

However, mortgage payments would have risen precipitously over the past few years even if interest rates hadn’t almost doubled from their COVID-19 pandemic lows. The average mortgage price of a home in the U.S. rose to $2,317 as of the middle of 2023, according to data shared by NAR. In areas of high-demand and low supply like California and Hawaii, average 30-year mortgages payments reached more than $3,000. 

Mortgage Payments are High, But So Are Down Payments 

For many families, it’s not just the prospect of dedicating a substantially higher percentage of monthly income to a mortgage payment but the higher down payment that comes along with a higher-cost home. According to figures shared by Forbes, the average price of a home in the United States in September 2023 was $412,000. 

A family interested in putting down the traditional 20 percent would need to come up with $82,400 for their down payment, which would allow them to avoid paying private mortgage insurance due to having greater than 20 percent equity in the home. With mortgage payments already so high, the prospect of having an even higher payment due to mortgage insurance represents just another barrier to home ownership. 

What Does the Future Hold for Home Buying in the U.S.? 

According to the U.S. Government Accountability Office (GAO), chronically low inventory has been a significant and contributing factor in creating an unaffordable real estate market. With high interest rates also causing unaffordability, many have wondered if the crisis has any chance of abating soon. According to research from JPMorgan, houses are more unaffordable in 2024 than they were in 2006, right before the housing bubble burst and the Great Recession swept across the nation. 

JPMorgan suggests that it will take about 3.5 years for the real estate market to equalize and housing affordability to improve if incomes continue to rise at their current pace. Even if homes continue to rise in value and interest rates don’t experience a meaningful decline, researchers at JPMorgan believe the housing market will eventually stabilize and offer greater affordability for the average American family. 

Buyers in major metropolitan areas and states with high home values, like California and other coastal areas, may need to wait even longer until those markets reach a greater point of affordability. Estimates suggest it may take more than five years to achieve better affordability in high demand areas. Until that time comes, buyers will need to get creative if they are to experience success in their hunt for the perfect home. 

Have questions?

If you or anyone you know has questions about financing or the current housing market, your expert Los Angeles mortgage brokers at Peak Finance are here to help. Contact us today at [email protected].