Home Buyers Need to Earn $47,000 More a Year Than in 2020 to Comfortably Afford a Home

On Thursday, Zillow reported that according to its latest analysis, homebuyers need to make in excess of $106,000 a year to comfortably afford a home—80% more than in January 2020.

In 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical US home, spending no more than 30% of its income with a 10% down payment. That was below the US median income of about $66,000, meaning more than half of American households had the financial means to afford homeownership. Now, the roughly $106,500 needed to comfortably afford a typical home is well above what a typical household earns each year, estimated at about $81,000.

A monthly mortgage payment on a typical US home has nearly doubled since January 2020, up 96.4% to $2,188 (assuming a 10% down payment), according to Zillow. Home values have risen 42.4% in that time, with the typical US home now worth about $343,000. Mortgage rates ended January 2020 near 3.5%, keeping the cost of a home affordable for most households that could manage the down payment. At the time of Zillow’s analysis, mortgage rates were about 6.6%.

Zillow data indicate that for a household making the median income, it would take almost 8.5 years before they would have enough saved to put 10% down on a typical US home, about a year longer than it would have in 2020. It’s no wonder, then, that half of first-time buyers say at least part of their down payment came from a gift or loan from family or friends.

Commenting on the report, Zillow’s senior economist, Orphe Divonguy, said:

“Housing costs have soared over the past four years as drastic hikes in home prices, mortgage rates, and rent growth far outpaced wage gains. Buyers are getting creative to make a purchase pencil out, and long-distance movers are targeting less expensive and less competitive metros. Mortgage rates easing down has helped some, but the key to improving affordability long term is to build more homes.”