Quarterly Analysis: Salary Required to Buy a Home

With typical seasonality, home price increases decelerated in the third quarter of 2021 compared to the second, but median home price increases across the 50 largest metro areas still ranged from about 7% to more than 33% compared to last year. Slightly lower mortgage rates helped provide some offset to cost increases, but affordability continues to be a challenge for homebuyers.

November 30, 2021 - HSH.com, a trusted online resource for mortgage data, content and expertise updated its analysis of the salary required to afford a median-priced home in the top 50 metropolitan areas for the third quarter of 2021. 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 third quarter of 2021, the updated research and calculations show that home price gains settled back a bit compared to the second quarter and were accompanied by slightly lower mortgage rates. On a quarter-to-quarter basis, median prices for homes are often lower in the third quarter of the year, but still remain considerably above year-ago levels.

The price of a median home sold in the third quarter of 2021 was lower in twelve metro areas, about 24% of the metros. This is actually a smaller number than is typical; leaving out 2020's pandemic-distorted market (where no metros saw seasonal slowing), third quarter's price deceleration was seen in less than half the typical number of metros with seasonal swing dating back to 2016.

Mortgage rates retreated a little during the period, and along with less-robust home-price gains, affordability was a little better in some areas in the third quarter compared to the second, but certainly not compared against to the third quarter of 2020. For the latest period, 26 metro areas required a slightly lower income to qualify for to buy a median priced home, a fair improvement compared to none during the spring homebuying season, when home prices often peak. Even with the relative improvement, all markets required higher annual incomes to buy a home, some considerably so.

There have been few indications of any loosening in the existing home market, so inventories of homes for sale remain lean and prices well supported. The fourth quarter of the year often features the fewest homes on the market, but home prices are often at their lowest point for the year during the period. Given the strength in home values thorough the third quarters, there may not be much relief for potential homebuyers as the year comes to a close.

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

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

Main takeaways from the updated research:

• The third quarter of 2021 saw a relative improvement in affordability compared to the second quarter, with smaller home price increases and mortgage rates that retreated back to levels seen earlier in 2021.

• Home prices continued their march higher. Although less on aggregate than what was seen in the second quarter, the median year-over-year increase in the price of homes sold was almost 15% across the 50 major metros we track. Compared to the third quarter of 2020, the largest gain in the top metros was 33.55% in the Austin-Round Rock (TX) housing market, but there were 11 with over 20% increases and several others very close to that too. The smallest annual gain was will over 7%, a figure that would be considered robust in normal times.

• Home affordability improved, relatively. Smaller price increases and a decline in rates helped this a bit in the third quarter, and the income needed to purchase a median priced home was lower in about half of the markets we cover. That's a relative improvement, though, since compared to last year in the third quarter a potential homebuyer needed anywhere from about 3% more income in the Milwaukee, WI metro to as much as over 24% more in the Austin TX metro.

• Mortgage rates retreated a bit in the period. After increasing by 0.13% in the second quarter, they declined by that exact amount in the third. By doing so, they matched their Q1 level and were actually about 11 basis points (0.11%) below the same period last year. With the economy improving and inflation concerns on the rise, odds don't favor we'll see lower mortgage rates for the fourth quarter or beyond.

• Even smaller home price increases still mean more cash is needed to keep up. Ever-rising home prices increase the difficulty of saving for a downpayment to buy a home. The 20% we use in our base calculations (or even 10% with PMI, found on each metro-area panel) are increasingly unattainable, even for diligent savers. A 20% downpayment for a median-priced home (national) in the third quarter of 2020 would have amounted to $63,680; one year later, and it'll take $72,740 to hit that level. A potential homebuyer would have had to accumulate another $755 per month -- $176 per week -- just to keep up.

• There remains little available to buy. At the current rate of sale, the National Association of Realtors estimates that there were about 2.5 months of supply on average to meet demand in the third quarter. That's the same as seen during the second quarter, but remains well below normal levels, let along the six months of supply thought to be optimal. After the usual seasonal tightness in the fourth quarter, the number of homes for sale should improve a bit, but will still be far short of the levels that will temper price increases to any great degree.

These items and other observations are discussed 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.