Inflation woes: Home buyers need 80% more income to buy than 4 years ago

(The Center Square) – The housing market is not immune from inflationary woes as buyer’s purchasing power has significantly diminished in four years. Home buyers in 2024 need 80% more income to purchase a home than they did in 2020, according to a new report by Zillow.

“The income needed to comfortably afford a home is up 80% since 2020, while median income has risen 23% in that time,” the report states. That equates to $47,000 more than four years ago.

“Home shoppers today need to make more than $106,000 to comfortably afford a home,” according to the report. “That is 80% more than in January 2020.”

A monthly mortgage payment for a typical U.S. home has nearly doubled since January 2020, the report notes, up 96.4% to $2,188. The calculations are based on a 10% down payment.

Home values also increased over 42% in the last four years, with the typical home nationwide worth roughly $343,000, according to Zillow’s January market report. Mortgage rates in January 2020 were 3%, the report notes. By February 2024, they are closer to 7%.

While costs have increased, wages have not. In 2020, a household income of $59,000 a year “could comfortably afford the monthly mortgage on a typical U.S. home, spending no more than 30% of its income with a 10% down payment,” the report notes. “That was below the U.S. median income of about $66,000, meaning more than half of American households had the financial means to afford homeownership.”

Four years later that analysis no longer holds true. Today, roughly $106,500 is needed to comfortably afford a mortgage payment, the report states, “well above what a typical U.S. household earns each year, estimated at about $81,000.”

In seven major housing markets, a minimum household income of $200,000 is needed to comfortably afford a typical home, the report notes.

The report’s analysis was based on quarterly median household income from the American Community Survey, Moody’s Analytics, and the Bureau of Labor Statistics’ Employment Cost Index.

The findings were announced as total household debt reached a record $17.5 trillion in the fourth quarter of 2023, according to a Federal Reserve Bank of New York report. Mortgage debt increased by $112 billion in Q4 2023 to reach $12.25 trillion. Balances on home equity lines of credit increased by $11 billion, the seventh consecutive quarterly increase after Q1 2022. There are currently $360 billion in aggregate outstanding balances, the Fed states.

A monthly mortgage payment for a typical U.S. home has nearly doubled since January 2020, the report notes, up 96.4% to $2,188. The calculations are based on a 10% down payment.

Home values also increased over 42% in the last four years, with the typical home nationwide worth roughly $343,000, according to Zillow’s January market report. Mortgage rates in January 2020 were 3%, the report notes. By February 2024, they are closer to 7%.

While costs have increased, wages have not. In 2020, a household income of $59,000 a year “could comfortably afford the monthly mortgage on a typical U.S. home, spending no more than 30% of its income with a 10% down payment,” the report notes. “That was below the U.S. median income of about $66,000, meaning more than half of American households had the financial means to afford homeownership.”

Four years later that analysis no longer holds true. Today, roughly $106,500 is needed to comfortably afford a mortgage payment, the report states, “well above what a typical U.S. household earns each year, estimated at about $81,000.”

In seven major housing markets, a minimum household income of $200,000 is needed to comfortably afford a typical home, the report notes.

The report’s analysis was based on quarterly median household income from the American Community Survey, Moody’s Analytics, and the Bureau of Labor Statistics’ Employment Cost Index.

The findings were announced as total household debt reached a record $17.5 trillion in the fourth quarter of 2023, according to a Federal Reserve Bank of New York report. Mortgage debt increased by $112 billion in Q4 2023 to reach $12.25 trillion. Balances on home equity lines of credit increased by $11 billion, the seventh consecutive quarterly increase after Q1 2022. There are currently $360 billion in aggregate outstanding balances, the Fed states.

Credit card debt reached a record $1.13 trillion in 2023, increasing by $50 billion, or 4.6% over the year, the report notes. Other personal debt, including retail cards and consumer loans, grew by $25 billion.

Auto loan debt increased by $12 billion to $1.61 trillion, “continuing an upward trajectory seen since 2011.” At the same time, car insurance rates surged 26% nationwide over the last year and are expected to remain elevated until 2025, according to a Bankrate report.