Homeownership Moves Even Further Out of Reach Even as Inventory Increases

More people in the U.S. are out house-hunting, but the prices they will have to pay – and the number of years they would have to save to afford a down payment – have risen steeply since 2020, new reports from Redfin and Zillow reveal.

One thing favoring potential buyers is that there are now 13% more homes for sale across the nation than last year, creating more inventory, though active listings are flat, Redfin reported. On the other hand, for the four weeks ending February 25, the typical mortgage payment was $2,671 – almost at the record high reached in October 2023.

According to the S&P CoreLogic Cash-Shiller national home price index, annual house prices climbed 5.5% in December 2023, its seventh consecutive record high. “Ten of 20 markets beat prior records,” it noted.

The outcome has been a case of look but don’t touch. Pending sales slumped 8% — the severest dip in five months – and mortgage applications fell too, Redfin reported. Its Homebuyer Demand Index, however, rose 10%, suggesting sales could pick up if mortgage rates go down and more listings are added.

Data from Zillow shows just how challenging home-buying can be. “In 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical U.S. home. That was below the U.S. median income of $66,000. Now, the roughly $106,500 needed to comfortably afford a typical home is well above what a typical U.S. household earns each year, estimated at about $81,000,” Zillow stated.

“A monthly mortgage payment on a typical U.S. home has nearly doubled since January 2020, up 96.4% to $2,188 (assuming a 10% down payment. Home values have risen 42.4% in that time, with the typical U.S. home now worth about $343,000, Zillow added. ” Mortgage rates – around 3.5% in January 2020 – are now 6.6% on average, or higher.

To make it possible to buy a house, buyers are targeting less expensive and less competitive metros. Some millennial and Gen Z homebuyers are resorting to “home hacking” – renting out all or part of a home for extra cash. Others are co-buying with a friend or relative, Zillow noted. To make a difficult situation even more difficult, it now takes longer to save up for a downpayment, according to Zillow. Even in Pittsburgh, with some of the lowest home prices in the county, a family earning $58,222 would have to save for 5.3 years to make a 10% down payment on a $201,000 home – meaning they would need $24,000 more income than in 2020. In Nashville, it would take 10.1 years for a family with $128,535 annual income to buy a $425,000 home — meaning they would need $60,000 more income than in 2020.

Those hoping to buy a house might look to Cleveland, Pittsburgh, Memphis, New Orleans and Birmingham, where Zillow reported homes are among the most affordable in the nation. Other locations, especially in the West and California, appear reserved for the well-to-do. In Los Angeles, a family would need income of $279,250 — $121,000 more than in 2020 – to buy a $918,247 home and it would take 19.4 years to save for the downpayment. In San Jose, CA a family would need income of $454,000 — $191,000 more than in 2020 – to buy a $1,493,255 home and it would take 18.8 years to save for the downpayment. In New York, a family would need income of $213,614 — $79,000 more than in 2020 – to buy a $627,944 home and it would take 12.9 years to save for the downpayment.

“Mortgage rates easing down has helped some, but the key to improving affordability long-term is to build more homes,” said senior Zillow economist Orphe Divounguy.

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