X

Wondering what income you'll need to buy a median-priced home? See our latest metropolitan area home affordability analysis

Wondering what income you'll need to buy a median-priced home? See our latest metropolitan area home affordability analysis

Quarterly Analysis: Salary Required to Buy a Home

Home prices are rising quickly, and mortgage rates have also begun to firm. With little available to buy, home sales are softening a bit as the traditional spring homebuying season continues.

June 1, 2021 - HSH.com, a trusted online resource for mortgage data, content and expertise released today its updated analysis of the salary required to afford a median-priced home in the top 50 metropolitan areas. The report uses the latest quarterly home price data from the National Association of Realtors (NAR), incorporates local property tax and homeowner’s insurance costs, and calculates the income needed to qualify for a median-priced home in each market.

In the first quarter of 2021, the updated research and calculations reveals that affordability continues to tighten, as spiking home prices are being met with somewhat higher mortgage rates. For the period, only two metro areas saw minor decreases in the salary needed to afford a median-priced home. That's sharply fewer than was the case in each of the last two comparable first-quarter periods; in 2020, the first quarter saw 44 markets where affordability increased, and 2019 saw 31 of 50 metros where a combination of the lowest seasonal home prices of the year and falling mortgage rates helped improve housing affordability.

That's no longer the case, since home prices have been leaping; the national median priced home, for example is 16.24% more costly this year than last. Even though mortgage rates were still materially lower in the first quarter of this year compared to last, that difference is no longer enough to offset higher costs for homes.

The most and least affordable metro areas in the salary analysis (assuming a 20% downpayment):

 Most affordable metropolitan areas

 Required salary per year to afford a median-priced home

  1.       Pittsburgh

  $35,656.98

  2.       Oklahoma City

  $38,534.31

  3.       Cleveland

  $39,380.90

 

 Least affordable metropolitan areas

 Required salary per year to afford a median-priced home

  1.       San Jose

  $254,531.75

  2.       San Francisco

  $208,015.40

  3.       San Diego

  $129,443.71

Salary calculations using a 10% downpayment and including PMI are also provided for each area.

Main takeaways from the updated research:

  • The first quarter of 2021 saw the first quarterly increase in mortgage rates since the fourth quarter of 2019, and the 0.10% rise was the largest since the last stanza of 2018. Even with the slight firming, rates used in our income calculations for 1Q21 were still 56 basis points (0.56%) lower than the comparable period a year ago.

  • Home prices are skyrocketing. Across the 50 major metros, the median year-over-year increase in the price of homes sold was 14.89%, with the highest gain of the top metros an eye-popping 28.23% in the Austin-Round Rock (TX) housing market. There were five other metros with 20%+ annual increases, and just three with anything smaller than double-digit gains.

  • Home affordability is a challenge, and one that is increasing. Also increasing is the difficulty in finding a suitable home at any price. Supplies of existing homes for sale may have bottomed during the first quarter of 2021, averaging 2.0 months of supply at the current rate of sale during the period. This is down from a 2.2 months average supply in the fourth quarter of 2020.

  • The falling mortgage rate offset to spiking prices ended in the first quarter. During the period, rated edged higher by a tenth of a percentage point, and the gap between present rates and comparable year-ago references continues to shrink. That gap is slated to decline further, as the fee-adjusted interest rates we use in our calculations are already running about another tenth of a percentage point higher for the second quarter.

  • Sharply rising home prices make saving for a downpayment and closing costs even more challenging. The continued strong increase in home prices means that a fixed-percentage down payment -- such as the 20% we use in our base calculations (or even 10% with PMI, found on each metro-area panel) -- must necessarily be larger, and therefore harder to attain. For example, the current quarter's $319,200 median home price means a 20% down payment of almost $64,000 (and 10% down still means more than $36,000 in cash must be available). These amounts are of course before any mortgage closing costs, funding for reserves and escrow accounts and the like are taken into account.

  • We expected that the spring homebuying market would be tempered by these factors, and this appears to be the case. While there remains plenty of demand in the market, highly limited supplies of homes in the hottest metro areas continue to put upward pressure on prices. April's monthly median home price was a record $341,600, up 19.1% compared to a year-ago value. The combination of higher savings needed to cover a down payment and decreasing monthly affordability seems to be starting to cull at least some potential buyers from the market, and sales of both new and existing homes have been softer as the second quarter began.

We discuss all these items and more in greater detail in the “Key Takeaways” component of the report.

With affordability on the wane, potential homebuyers of more modest means looking to buy homes may struggle to come up with a down payment and closing costs, especially in heated markets. Help making the jump to homeownership is often available but is tricky to find if you don't know where to look. To help potential 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.

Find the lists here for the 25 most expensive and 25 least expensive metropolitan areas with display maps for each list.

Since 1979, HSH.com has been a trusted mortgage resource for consumers seeking independent, objective and expert-level information, forecasts and data. HSH.com offers unique analysis, calculators, tools and content to help demystify first mortgages, home equity loans and lines of credit, reverse mortgages and more. HSH.com empowers homebuyers and homeowners to fully understand their home financing choices and provide opportunities for them to engage with partners to execute their transactions. Keith Gumbinger, mortgage expert and vice president of HSH.com, is available for interviews at your request.

Add to Homescreen?
X
X
Install this web app on your phone :tap and then Add to homescreen