Typical Income To Buy Home Surged to $107,000 Last Year

That’s according to a report from the National Association of Realtors (NAR) Monday, which said the 22% annual increase was the largest jump in homebuyer income on record. The NAR has been analyzing the characteristics of homebuyers since 1981.

The NAR’s data adds to multiple reports from various real estate data providers showing it now takes a six-figure household income to afford the monthly mortgage payments on a typical home. That’s a dramatic increase from the pandemic era, when ultra-low mortgage rates took some of the sting out of soaring home prices. The average rate offered for a 30-year mortgage has surged, flirting with 8%, from a record low of 2.65% in 2021, adding hundreds of dollars to typical mortgage payments. 

The average monthly mortgage payment to buy a home with a 30-year fixed rate mortgage jumped to $2,045 in December 2022, up from $1,400 in December 2021—an astounding 46%,  according to the Consumer Financial Protection Bureau (CFPB).

Ironically, the Federal Reserve’s efforts to reduce inflation are largely responsible for homes becoming unaffordable. The central bank has raised its benchmark interest rate to a 22-year high, pushing up all kinds of borrowing costs, especially for mortgages, in an effort to discourage borrowing and spending and to bring supply and demand back into balance throughout the economy.

Wages rose over the time period of the NAR’s analysis, too, and families as a whole have become wealthier. But much of the recent increase in wealth came from the increase in home prices, cold comfort to first-time buyers without any housing wealth of their own to draw on. Average hourly earnings were up 4.41% over the 12 months ending in June 2023, according to the Bureau of Labor Statistics, far short of the 22% increase in home prices.

The average income of homebuyers was well above what the average person makes, according to the Census Bureau. The median household income in 2022 was $74,580. The situation was a little better for families, defined as two or more related people who live together, as opposed to all households, which includes single people. Median family income was $95,450—still short of the amount needed to comfortably afford to buy a house.

The recent shift only worsens a longstanding trend working against younger people seeking to buy homes.?

As of 2021, at age 30, only 38% of college-educated millennials (defined as people born between 1980 and 1996) owned homes, according to a July analysis of Census Bureau data by Victoria Gregory, an economist at the Federal Reserve Bank of St. Louis. 

By contrast, 54% of college-educated baby boomers (born between 1946 and 1964) were homeowners at the same point in their lives. The trend was even more stark for those without college educations: 24% of those millennials owned homes, compared with 49% of boomers at age 30.