Jeanne Sahadi | CNN
new york – After 2020, buying affordable housing in the United States has become extremely difficult for many people.
A new analysis from Bankrate.com finds that in 22 states and Washington, D.C., buyers need a six-figure household income to comfortably afford a median-priced home.
That's significantly more than just six states and the District of Columbia, where Bankrate reported in January 2020 that buyers needed a six-figure income.
“Home price growth has so far outpaced wage growth, making housing more unaffordable,” said Jeff Ostrowski, an analyst at Bankrate. “Why have home prices risen so quickly? It's supply and demand.”
Both the decline in homebuilding and the “lock-in effect” of rising mortgage rates and home prices are reducing the supply of homes to meet buyer demand, he said.. These factors make existing homeowners hesitant to sell because it will cost more to buy a new home.
What does “affordable” mean?
Of course, the definition of “affordable” varies widely and depends heavily on the buyer's financial situation: not only their income but also their savings, whether they have significant debt, whether they own other properties, etc. It also matters whether they have enough money left over after purchasing the home to cover all their other bills and maintenance costs.
Bankrate.com's analysis assessed affordability strictly in terms of mortgage payments (including principal, interest, property taxes and property insurance) based on several conservative assumptions, but did not take into account closing costs, which vary widely depending on the lender, loan type and home location, nor did it take into account the costs of maintaining a home or other non-housing expenses.
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Specifically, the analysis assumed that buyers would make a 20% down payment and take out a 30-year fixed-rate mortgage with a 52-week average interest rate. It also assumed that mortgage payments would not exceed 28% of annual gross income.
Using this, Bankrate calculated that while the median home price in the US is $402,343 (according to Redfin), “a potential homebuyer would need to earn $110,841 a year to purchase a median-priced home.” (The median sales price in a given area is the price above which half of the homes for sale are priced, and the other half are priced below.)
Of course, national or even state averages can give you a rough idea of trends in home affordability, but they don't tell you much about the area you're looking in, as property values are always determined by “location, location, location.”
Where you need to earn the most and least to buy a median-priced home
According to Bankrate's research, homebuyers on the West Coast and Northeast need the highest household income to purchase a typical home, with the top five states rounding out the list being California (needing to earn $197,051), Hawaii ($185,829), District of Columbia ($167,871), Massachusetts ($162,471) and Washington ($156,814).
Other states that require a six-figure income are Arizona ($110,271), Colorado ($152,229), Connecticut ($119,614), Florida ($114,771), Idaho ($114,386), Maine ($102,557), Maryland ($108,257), Montana ($131,357), Nevada ($111,557), New Hampshire ($130,329), New Jersey ($152,186), New York ($148,286), Oregon ($129,129), Rhode Island ($132,343), Texas ($100,629), Utah ($133,886), Vermont ($114,471), and Virginia. ($106,971).
In contrast, Southern and Midwestern states have the lowest income levels needed to purchase a median-priced home: Mississippi ($63,043), Ohio ($64,071), Arkansas ($64,714), Indiana ($65,143), and Kentucky ($65,186).
Regions with the largest (or smallest) increase in income needs since 2020
Six-figure incomes aside, how much more income you need today than you needed yesterday to buy the average home can indicate how your ability to buy a home changes over time.
Compared to 2020, the states with the largest increases in income requirements were Montana (77.7% increase), Utah (70.3% increase), Tennessee (70.1% increase), South Carolina (67.3% increase) and Arizona (65.3% increase).
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“Home prices have skyrocketed in the Sunbelt over the past few years as new homebuyers have flown into the region,” Ostrowski said. “This trend has been going on for decades and is intensifying.”
But there are still some bargains to be found in the Rust Belt and Midwest, he added. For example, Bankrate found that the states with the smallest increases in income needed to buy a median-priced home were North Dakota (up 9.2%), Illinois (up 27.2%) and Kansas (up 29.3%).
You can see the full Bankrate analysis here.
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