X

Wondering about where mortgage rates are headed? Check out our latest Two-Month Mortgage Rate Forecast.

Wondering about where mortgage rates are headed? Check out our latest Two-Month Mortgage Rate Forecast.

Quarterly Analysis: Salary Required to Buy a Home

HSH Editors Image

The income needed to purchase a median-priced existing home continued to rise in the third quarter of 2022. Home prices are still rising, but at a slower pace than earlier in the year; however, higher mortgage rates erased any benefit of these less-robust increases.

November 24, 2022 - 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 2022. The report uses the latest quarterly existing 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.

As has been the case throughout 2022, rising mortgage rates continue to put a crimp in homebuying plans. For the third quarter, the average offered rate for a conforming 30-year fixed-rate mortgage rose by another 34 basis points (0.34%) to 5.86%. By contrast, in the third quarter of 2021 the average rate was 3.04%, so compared to the same period a year ago, the most popular mortgage saw its rate nearly doubled.

Higher mortgage rates would vex potential homebuyers less if home prices were lower. On a month-to-month basis home prices have settled a little bit from a record high set back in June, but comparing the current quarter against a year-ago reference still finds home prices almost 10% higher this year than last. That's a bit better than the 14-15-16% increase seen in each of the last four quarters, but not nearly enough to improve affordability.

While individual markets will of course have larger or smaller increases, the combination of higher mortgage rates and still-higher home prices means that the income needed to buy an existing, median-priced single-family home requires almost 41% more income this year than last year, rising from $67,921.08 to $95,716.69 over that time. It goes without saying that potential homebuyers are unlikely to have seen their incomes rise by that much in such a short period of time, and enough of them are moving to the sidelines as to trim existing home sales back to around 10-year lows.

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

 Most affordable metropolitan areas

 Required salary per year to afford a median-priced home

  1.       Pittsburgh

  $55,006.23

  2.       Cleveland

  $59,867.17

  3.       Oklahoma City

  $60,670.83

 

 Least affordable metropolitan areas

 Required salary per year to afford a median-priced home

  1.       San Jose

  $359,126.57

  2.       San Francisco

  $282,117.13

  3.       San Diego

  $201,223.44

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

Main takeaways from the updated analysis:

  • The third quarter of 2022 saw another decline in affordability compared to the previous quarter. Higher mortgage rates during the period erased the benefits from a stronger- and more widespread) than-normal seasonal decline in home prices.

  • Home prices settled back from record highs. While it's common to see slightly lower median home prices in the third quarter of each year compared to the "spring homebuying season" in the second quarter, the declines this year were more widespread -- 41 of 50 metros (82%) saw quarter-to-quarter home price declines, the most of any similar period dating back over the last seven years. That said, the most common reference of home prices is against year-ago-levels, and by this comparison, home prices are still rising strongly. although considerably less than they have in recent years.

  • Home affordability declined across a majority of markets during the period. The income needed to purchase a median-priced existing home was higher in 35 of 50 metros but lower in 15 others, although in a number of cases the decline was measured in only hundreds of dollars. Last year in the third quarter, 26 metros saw lower required incomes to buy a home, so even with lower median prices across more metros this year, higher mortgage costs largely overwhelmed lower prices.

  • Mortgage rates higher again during the period. Already strongly on the rise for much of 2022, mortgage rates pressed higher again as persistent inflation and tightening monetary policy kept rates in a firming trend. The average offered rate for a 30-year fixed-rate mortgage used in our calculations rose by another 34 basis points to 5.82%, the highest level since the fourth quarter of 2008.

  • Rising home prices mean a greater need for borrowers to save. As the goalposts keep moving, 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. To make a a 20% downpayment for a national median-priced home in the third quarter of 2021 would have required $72,620; one year later, and it'll now take $79,700 to hit this level. A potential homebuyer would have had to accumulate another $590 per month -- $137 per week -- just to keep up with the rise in home prices. This is at least slightly better than in the second or third quarters of 2022, but still a considerable challenge for potential homebuyers.

  • There remain too few homes available to buy, but this is changing a bit. At the current rate of sale, the National Association of Realtors estimated that there were about 3.2 months of supply on average to meet demand in the third quarter, up from about 2.6 months in the second. While this still remains below optimal levels of supply, the trend is in the right direction, with November inventory levels now showing 3.3 months of supply of homes for sale.

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.

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