See below exactly how much income you would need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in the 50 most populous metropolitan areas.
Key takeaways:
The first quarter of 2024 featured a modest overall improvements in home affordability, thanks primarily to mortgage rates that declined compared the final quarter of 2023, but also to seasonal price effects, too.
The closing stanza of last year saw 30-year fixed mortgage rates climb nearly to 8 percent at one point before retreating, while they were relatively stable at a lower level to start this year. Unfortunately, at least through the first half of the second quarter, they have moved higher again.
Regardless of what the future may hold, it's reasonable to question exactly how much help lower mortgage rates can provide, given that home prices remain high and well supported. As was the case in the fourth quarter, seasonal home price declines were again less geographically broad and shallower than last year. The first three months of 2024 saw 24 of the top 50 metros with lower median home prices during the period, but the median price change across all 50 metros was zero, as 24 also saw increases while two were unchanged. By comparison, in the first quarter of 2023, 78% of metros saw lower prices and the median price decline was 2.06%. That home prices remain firm is good for home sellers but less so for home buyers.
That said, with their leveraging effect, lower mortgage rates are more important in the affordability calculation than are lower home prices. In the current "national" calculation, buying a $389,400 median home price with a 20% down payment ($311,520 loan amount) using a 30-year mortgage with a rate of 6.75% requires an annual income of $104,339.02 to qualify once typical tax and insurance costs are included. Thanks to stubborn inflation, expectations for lower interest rates this year have largely been curtailed, keeping mortgage rates elevated, so the best homebuyer weapon against rising home costs isn't likely to be much seen this spring and perhaps beyond.
Outside of a major change in the economy, to current buyer demographics or a huge shift in the supply of available homes for sale, it's simply not likely that home prices will decline in the aggregate or by very much, even if a few markets do seem to be settling somewhat. At best, buyers can hope that price increases flatten out over time while their incomes rise and mortgage rates decline at the same time, so that more balanced buying conditions emerge. When these components might come together in beneficial fashion is anyone's guess at this point, but it doesn't seem highly likely we'll be seeing them any time very soon.
Home Price Trends
After the typical fourth-quarter-of-the-year bottoming, home prices typically begin to rise again in the first quarter of the year. That was again the case to start 2024, but more so this year than last.
Looking at the 4Q-1Q price transition over the two-quarter period in 2022-2023, none of the top 50 metros saw higher home prices in 4Q22; this was followed by just 11 with increases to start 2023, so the percentage-change cadence was 0% and 22% of markets with home price increases, respectively.
For the comparable recent two-quarter period, 4 of the top 50 saw price increases in the final quarter of 2023 and 24 metros saw price increases to start 2024, so the percentage changes would be 8% and 48% over the last two quarters (two markets had unchanged values from where they closed last year). Overall, there was again less broad seasonal softening for home prices and where these did occur, the discounts were smaller.
Even with quarterly seasonal softening, home prices in 48 out of 50 metros are materially higher than a year prior. Two metros -- San Antonio and Austin TX -- saw outright lower year-over-year prices; the other 48 sported increases that ranged from 0.26% in the Orlando, FL market to Richmond, VA's 17.31% annual increase. Twelve metros posted double-digit annual price increases; this is the actually highest number of 10%+ increases since the third quarter of 2022, so home prices were on a stronger upswing as the spring homebuying season got underway this year.
More simply stated, potential buyers just haven't been seeing the same seasonal "bargains" in their local housing markets that they might have expected. As well, the shallower and less broad reductions set the stage for home prices to power higher this spring; unless there's a material change in the supply of new homes, it's a reasonable bet that new record-high home prices will be seen later this year.
Salary Situation
Fewer seasonal price declines but broadly lower mortgage rates during the first quarter actually saw a quaterly improvement in home affordability, as a lower income was needed to qualify to purchase a median-priced single-family in 47 of the top 50 housing markets. Only three metro areas saw a higher salary needed to buy a median-priced home in the first quarter of 2024 compared to the fourth quarter of 2023 -- San Jose CA, Memphis TN and New Orleans LA.
That said, a comparison against a more commonly-cited year-ago reference wasn't nearly as encouraging, as just a single metro area (Cleveland-Elyria OH) saw an actual year-over-year improvement in affordability. Increases in the income required to buy a median-priced existing home were higher across the remaining 49 metro housing markets, with increases ranging from 1.78% in San Antonio, TX to as much as 21.43% in the San Jose CA metro area. Costs in San Jose are also higher as homes there must be financed with pricier jumbo mortgages.
On a "pass/fail" basis, and using the latest available median family income from the Census Bureau, 23 of 50 metros (46%) have incomes that are high enough to be able to purchase a median-priced single-family home. Lower mortgage rates to start 2024 were largely the reason, but incomes are also slowly rising, too. The other 54% -- including San Jose -- have local incomes that simply aren't high enough to allow many potential homebuyers to participate in their market, at least at the median price level. Of course, given that there are still far too few homes available to meet even reduced demand, this might actually be serving to keep home prices from increasing even more strongly at the moment.
Inventory Issues
The number of homes for sale often thins out during the fourth quarter of each year, then begins to rebound somewhat as the winter fades.
Inventory levels of homes available to buy are measured against the present rate at which they are selling, called an inventory-to-sales ratio. While useful, this measure can be misleading, since a fall off in demand -- such as might happen when mortgage rates suddenly or continually rise -- can bloat the figure upward even if no additional homes for sale come to market. However, sales actually picked up a bit during the first quarter, but so did inventory levels, meaning there were actually more homes available to buy even amidst a modest pickup in sales.
It is said that the "lock-in effect" -- homeowners unwilling to sell and trade a low-rate mortgage for a higher one -- is a key factor in why there are so few existing homes for sale. While that is likely true, it's also true that home prices are also significantly higher now then they were over the last couple of years, and there's a reasonable likelihood that many wanna-be sellers would have difficulty qualifying for today's more expensive homes even if mortgage rates were measurably lower than they are at the moment.
Even if they can meet the challenge presented by higher rates and higher home costs, sellers face the same nothing-desirable-to-buy situation that buyers without homes face, and so must wait until conditions become better balanced for their needs. It's not quite a chicken-or-the-egg situation, but a combination of smaller step up in mortgage payment (either lower rates or prices, or a combination of both) or more suitable or viable homes to buy at present prices is going to be needed over time to restore a more properly functioning existing housing market.
At least one saving grace for some sellers is that they may be able to explore avenues that have fewer barriers and better actual availability of homes for sale. For example, a seller looking to buy new construction doesn't face the limited inventory issue that continues to bedevil potential buyers of existing homes, and for that, many builders are offering price concessions and even financing assistance. Folks relocating away from crowded coastal real estate markets may also find better availability and value opportunities, too.
How much house will your income and debt-load support? You can run your own calculations with HSH.com's How Much House Can I Afford to Buy? calculator.
Downpayment Difficulties
Potential homebuyers chasing today's markets know the problem all too well. Rising home prices mean greater amounts of savings are needed to achieve even a small downpayment. Our calculations use a 20% down payment as a base, since this eliminates the complication of factoring for the costs of Private Mortgage Insurance, where premiums are dictated by the borrower's credit strength, size of the borrower's downpayment and choice of mortgage type and term.
Want to buy the first quarter's national median-pried home with a 20% down payment? You'll need to have amassed $77,880 in savings -- and this leaves out the need to accumulate funds for mortgage closing costs and any required reserves. Even for a highly diligent saver this amount will likely take years to accumulate, and by then, higher home prices will likely necessitate an even larger amount.
It's a small but welcome change that the 20% downpayment dollar amount in the first quarter of 2024 is actually lower than what was seen in the fourth quarter of 2023 ($78,260) but unfortunately is still $3,680 more than in the first quarter a year ago. As such, a potential buyer would have had to save an additional $306.66 per month ($70.77 per week) on top of any other savings just to keep pace with home price increases over the last year.
Not to be discouraging, but if someone could save $1,000 per month, it would take them about six and a half years just to reach today's 20% downpayment level; saving at twice that rate would make it about three and a half years... but in either case, the downpayment goal line will surely have moved, again as home prices tend to rise with inflation over time.
Even someone looking to get in with a minimal 3% downpayment -- available on Fannie Mae's HomeReady and Freddie Mac's Home Possible programs (and 3.5% down for FHA-backed loans) would need $11,130 and $12,985 respectively. This would shorten the savings timeframe, but a smaller downpayment on that same median-priced home means both a larger loan amount and incurring mortgage insurance costs -- so a higher income is actually required to qualify.
If you're thinking of going with one of these low-downpayment options, you'll want to see how these choices will work over time by using HSH's Low Downpayment Mortgage Comparison Calculator. You'll be able to see the costs of non-cancelable FHA mortgage insurance against the cancelable PMI costs of Fannie and Freddie offerings over any time horizon you desire. We take into account risk-based loan-level pricing adjustments, too.
Potential homebuyers of more modest means looking to buy homes often struggle to come up with even a minimum downpayment and closing costs, especially in heated markets. Help making the jump to homeownership is often available but can be tricky to find if you don't know where to look. To help would-be homebuyers, HSH offers its database of Homebuyer Assistance Programs by state, where information about these valuable programs, vital website addresses, contact info and more can be found.
