Affordable Home Ownership Challenges in 22 States Revealed by Recent Analysis
The dream of owning an affordable home in the United States has become increasingly elusive post-2020, especially in 22 states. Discover the financial hurdles many face in purchasing a typical home in these regions.
Buying a home in the United States has become more challenging for many people since 2020. According to a recent study by Bankrate.com, in 22 states and Washington, DC, buyers now need a six-figure household income to comfortably afford a typical median-priced home.
In January 2020, Bankrate discovered that buyers in only six states and the District of Columbia needed a six-figure income to afford a home. That number has significantly increased since then.
According to Jeff Ostrowski, an analyst at Bankrate, the reason for this increase in housing affordability is due to the fact that home prices have risen much faster than wages. The main factor driving up home prices is the imbalance between supply and demand.
What does "affordable" mean?
There has been a decrease in housing supply to meet the demand from buyers. This is due to less homebuilding and the "lock-in effect" caused by higher mortgage rates and home prices. These factors make current homeowners hesitant to sell as it would be more expensive for them to purchase a new home.
Affordability can mean different things to different people, depending on their financial situation. It's not just about income, but also about savings, existing debts, and other properties owned. It's important to consider if there will be enough money left over after purchasing a home to cover maintenance costs along with other expenses.
A house is for sale in Arlington, Virginia, July 13, 2023.
A house is for sale in Arlington, Virginia, July 13, 2023.
Saul Loeb/AFP/Getty Images
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The Bankrate.com analysis focused on affordability by looking at mortgage payments, including principal, interest, property taxes, and property insurance. However, it did not consider closing costs, which can vary greatly depending on the lender, loan type, and home location. Additionally, the analysis did not take into account home maintenance expenses and other non-housing costs.
In particular, the analysis assumed buyers would make a 20% down payment and secure a 30-year fixed-rate mortgage at the average interest rate over 52 weeks. It was also assumed that their mortgage payments would not exceed 28% of their annual gross income.
Bankrate calculated that in the United States, the overall median home price is $402,343 according to Redfin. Aspiring homebuyers must earn $110,841 annually to afford a median-priced home. (A median sales price in an area is the price at which half of the homes for sale are priced higher and half are priced lower.)
National averages, or even state averages, can provide a general idea of housing affordability trends. However, they may not reflect the specific neighborhood you are interested in. Real estate values are heavily influenced by the old saying, "location, location, location."
In order to afford a median-priced home, Bankrate discovered that people in the West Coast and Northeast need the highest household incomes. The top 5 places where this is the case are California (requiring an income of $197,051), Hawaii ($185,829), District of Columbia ($167,871), Massachusetts ($162,471), and Washington State ($156,814).
States that require a six-figure income are Arizona ($110,271), Colorado ($152,229), Connecticut ($119,614), Florida ($114,771), Idaho ($114,386), Maine ($102,557), Maryland ($108,257), Montana ($131,357), Nevada ($111,557), New Hampshire ($130,329), New Jersey ($152,186), New York ($148,286), Oregon ($129,129), Rhode Island ($132,343), Texas ($100,629), Utah ($133,886), Vermont ($114,471), and Virginia ($106,971).
On the other hand, states in the South and Midwest require the lowest income levels to afford a median-priced home: Mississippi ($63,043), Ohio ($64,071), Arkansas ($64,714), Indiana ($65,143), and Kentucky ($65,186).
Affordability can be measured by how much more income is needed to purchase the average home today compared to yesterday, aside from six-figure incomes.
Income needs saw the biggest increase in Montana (up 77.7%), Utah (up 70.3%), Tennessee (up 70.1%), South Carolina (up 67.3%), and Arizona (up 65.3%) compared to 2020.
According to Ostrowski, the Sun Belt has become less affordable due to the growing number of new homebuyers in those regions. This trend has been ongoing for years and has become more pronounced recently.
However, he mentioned that there are still opportunities for good deals in the Rust Belt and the Midwest. For example, Bankrate's research shows that the income required to purchase a home at the median price increased the least in North Dakota (up 9.2%), Illinois (up 27.2%), and Kansas (up 29.3%).
You can access the full Bankrate analysis here.
Editor's P/S:
The escalating home prices in the United States have made homeownership an increasingly distant dream for many families. The Bankrate study highlights the stark reality that in over 20 states and Washington, DC, a six-figure income is now a prerequisite for affording a typical median-priced home. This surge in housing affordability is primarily attributed to the widening gap between home prices and wages, with the supply-demand imbalance being a key driver.
The concept of affordability is subjective, varying greatly depending on individual financial circumstances. However, the Bankrate analysis offers a comprehensive view of affordability by considering mortgage payments, property taxes, and insurance. It's crucial to note that other essential expenses, such as closing costs, maintenance, and non-housing costs, are not factored into the analysis. Nevertheless, the study provides valuable insights into the challenges faced by aspiring homeowners in today's competitive real estate market.
