Quarterly Analysis: Salary Required to Buy a Home - Fourth Quarter 2022

The income needed to purchase a median-priced existing home continued to rise in the fourth quarter of 2022. Despite seasonally-lower home prices across all 50 major metro areas tracked by HSH.com, home affordability declined again.

February 21, 2023 - 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 fourth 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.

Another significant increase in mortgage rates during the fourth quarter of 2022 meant that home affordability declined yet again. During the period, the average offered rate for a conforming 30-year fixed-rate mortgage rose by another 102 basis points (1.02%) to 6.84%. By contrast, in the fourth quarter of 2021 the average rate was 3.25%, so the mortgage rate used in HSH's calculations more than doubled compared to the same period a year ago.

Higher mortgage rates would vex potential homebuyers less if home prices were lower. The typical seasonal decline prices of homes sold during the fourth quarter of 2022 was both broader and deeper than has been the case in recent years; values in all 50 metros tracked by HSH saw quarter-to-quarter declines compared to prices in the third quarter. However, those declines were not enough to offset higher financing costs, and home affordability declined again during the fourth quarter of 2022 in 49 of 50 metro areas, with only Austin, TX seeing a reduction in the income needed to purchase a median-priced home. The $364.95 decline was the result of an 11.58% decline in the median price of a home sold in that market, but even this significant decline was barely enough to offset the spike in mortgage rates.

Home prices may be leveling off or even beginning to retreat, but they remain above last year's levels in a majority of metro areas. Eight of the top 50 metro areas did see year-over-year declines in prices, which ranged from as little as 1.32% in the Los Angeles, CA metro area to a decline of 6.11% in the San Jose, CA metro, the most expensive market among the top 50 group. Conversely, there were six metros still sporting annual price increase in excess of 10%, with the Tampa FL metro area increasing by 12.39% over the last 12 months.

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 48% more income this year than last year at the same time, rising from $69,524.56 to $102,838.65 over that time. It goes without saying that potential homebuyers are unlikely to have seen their incomes rise by that much, 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):

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

Main takeaways from the updated analysis:

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

• Home prices settled back from record highs. The fourth quarter of each year typically features the lowest prices for homes sold of any quarter. Typically, about 80% or so of the top 50 metros see lower prices; this year, all 50 metros posted declines. These declines the median price of a home sold during the period were also more considerable than usual. Nationally, the typical decline in price from the third quarter is 2-3%; it was nearly double this amount in the fourth quarter of 2022, and the median decline across all 50 markets was 5.23%

• Home affordability declined again across a majority of markets during the period. The income needed to purchase a median-priced existing home was higher in 49 of 50 metros and lower in just one. One year ago, in the fourth quarter of 2021, 17 metros saw lower required incomes to buy a home, so even with lower median prices across more metros this year, higher mortgage costs overwhelmed price declines in nearly every instance. Compared to the same period a year prior, purchasing a nationally median-priced home required in the fourth quarter of 2022 required 48% more income.

• Mortgage rates were significantly higher again during the period. Already strongly on the rise for much of 2022, mortgage rates hit their 2022 peaks during the fourth quarter. The quarter-to-quarter increase was 102 basis points (1.02%), lifting the fee-adjusted average offered rate for a conforming 30-year FRM to 6.84%, a 21-year high.

• 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 fourth quarter of 2021 would have required $72,860; for 2022, that amount has risen to $75,740. A potential homebuyer would have had to accumulate another $240 per month just to keep up with the year-over-year rise in home prices. At a time when high inflation is eroding available consumer dollars, the challenge of having to save even more funds for a downpayment and loan closing costs is only increasing.

• There continue to be too few homes available to buy, but this seems to be improving gradually. 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 fourth quarter of 2022, the same level as seen in the third quarter. The fourth quarter of the year often sees the leanest inventory of homes for sale; by way of comparison, the fourth quarter of 2021 saw just 2.1 months of supply available. While still very thin, the number of homes for sale in the third and now fourth quarters of 2022 are relatively thick by comparison, if still well below optimal levels.

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.