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Real estate expert warns ‘no signs’ housing affordability will improve for buyers in near future

April 3, 2024

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In 2020, a six-figure salary was needed to afford a median-priced home in just six states and DC

A new study shows buyers require a substantial six-figure income to afford a home in almost half of the states in the country, and an industry expert cautions that the situation is not expected to improve in the near future.

"There’s no sign that things will get better for buyers," Bankrate analyst Jeff Ostrowski told FOX Business, referring to both housing supply and mortgage rates. 

Since conditions aren't likely to get better over the coming months. Ostrowski said buyers that need or want to move should do so. 

In most parts of the country, home prices have held steady, and "it's hard to envision any type of price correction coming," Ostrowski said. 

For one, he said there is no indication that there will be a large amount of new supply hitting the market. On top of that, the "lock-in effect" continues to persist. 

"Homeowners already have no interest in paying off a mortgage at 3% and going out and taking out a new mortgage for 7%, so that lock-in effect seems to be real," he said, adding that mortgage rates aren't coming down as quickly as expected.
"As recently as a few months ago, the consensus was that mortgage rates were going to be down below 6% by the end of this year. And that's just not happening," he said.
Now, it's projected that rates might be down to around 6.25% by the end of the year, which isn't enough of a drop from the current rate to "spur a lot of those locked in homeowners to sell or… really encourage a lot of people to jump into the market." 

Mortgage rates have spiked more than three percentage points over the past few years. Currently, the rate on a 30-year fixed mortgage is 6.79%, according to Freddie Mac. At the beginning of 2020, the rate was around 3.7%.

Six Figures Needed

With the continuation of high mortgage rates and rising home prices coupled with low housing inventory over the last couple of years, Bankrate found that Americans must earn at least $100,000 annually to afford such homes in 22 states as well as the District of Columbia. 

pecifically, Americans need an annual income of $110,871 to afford a home costing around $402,343, up 46% since the start of 2020, according to the Bankrate analysis.  

That compares with four years ago when a six-figure salary was required in only six states and D.C. 

People looking to buy a home in California, Hawaii, D.C., Massachusetts and Washington need to earn between $156,814 and $197,057, the analysis showed. 

However, income needed to afford homes in Montana, Utah and Tennessee has risen the most since 2020, jumping 77.7%, 70.3% and 70.1%, respectively. 

Income needed to afford a typical home in South Carolina and Arizona also rose significantly, up 67.3% and 65.3%, respectively. 

Comparatively, the income needed to afford a typical home rose the least since 2020 in North Dakota, D.C., Louisiana, Illinois and Kansas.

While incomes are on the rise, the issue is that they are not keeping pace with the rate of starter-home costs

As of February, a typical American household earned an estimated $84,072, up 5.5% from a year earlier, according to a recent report from Redfin. In comparison, the income needed to purchase a starter home jumped 8.2% from a year earlier. 

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