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Housing: How much more income is needed to afford an average single-family home?

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  • Staff Report 

According to a new study by RubyHome Luxury Real Estate, the average income needed to purchase a single-family home in the United States has risen from $75,969 in Q4 2021 to $107,107 in Q4 2022, an increase of $31,193, or 34%.

Americans now require an income that is twice the average salary, or seven times the federal minimum wage, to afford a single-family home. The study also found that the average American can no longer afford to buy a single-family home in any of the top 50 U.S. cities.

The study analyzed the housing market statistics to determine the income needed to buy a single-family home in the United States. The team compared median home prices and interest rates, including taxes and insurance calculations, to determine the necessary salary to cover monthly mortgage payments. The data revealed that home prices hit record highs in 2022 due to rising mortgage rates and inflation.

In the early summer of 2022, interest rates hovered at 3.10%. The Federal Reserve then began to combat inflation by implementing interest rate hikes until mortgage rates reached nearly 7%. The average 30-year rate in Q4 2022 was 6.66%, up from 3.08% in Q4 2021. This made the cost of borrowing money much more expensive, leading to higher monthly mortgage payments.

The current real estate market is described as “unbalanced” by Tony Mariotti, CEO and founder of RubyHome. Home affordability is affected by three major factors including home prices, interest rates, and household income. Mariotti says that interest rates have the most impact on the market due to their velocity compared to income and house prices. Home prices are somewhat stable, though some markets that were hot during the pandemic are seeing significant declines. Salaries have grown in 2022, but have not kept pace with inflation.

With 20-year-high mortgage rates and a changing real estate market, homebuyers may struggle to know what they can afford as the “buying season” of 2023 approaches. Real estate experts are advising homebuyers to carefully consider their finances and to stay informed on changes to the market.

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