For years, the general rule of thumb was that households should spend no more than 30% of their gross monthly income on mortgage payments. In 47 of the top 50 U.S. metro areas, that 30% affordability rule may be outdated, according to a report released Wednesday by Realtor.com.
The real estate listings company found that only residents of Pittsburgh, Detroit and St. Louis could afford a median-priced home as of the end of May without breaching the 30% income threshold. Even in Pittsburgh, the most affordable among large metros, the typical household would need to spend 27.4% of their income on a median home, assuming a 20% downpayment and May’s average mortgage rate of 6.82%.
Nationwide, the typical U.S. household would need to spend 44.6% of their income to afford a median-priced home, according to Realtor.com data.
“Earnings have risen, but homebuying costs have risen faster, which means that adhering to affordability guidelines can feel challenging if not impossible in many housing markets across the country,” Realtor.com Chief Economist Danielle Hale said in a press release. “While a few Midwestern markets still offer a path to homeownership for the median-income household who can make a 20% downpayment, in most large metros, the dream of owning a home remains out of financial reach without significant changes to either housing supply or interest rates.”
Comfortably affording a home in the greater Los Angeles area isn’t feasible for many residents, where the annual mortgage payment on a median-priced home averages $95,496, including taxes and insurance, and the median annual household income is $91,380, according to Realtor.com.
LA’s 104.5% share of income required to afford home payments tops all U.S. metros. On the East Coast, the New York City metro area — which includes the Jersey City and Newark areas in New Jersey — clocks in at a 66.9% income share. Boston sits at 64.3%.
What’s the solution to this affordability crunch? Realtor.com is unequivocal in its answer: “Build more affordable homes.”
“Home prices remain stubbornly high in markets that are in demand but face a growing home supply gap,” the Realtor.com report states. “In contrast, home prices have eased in many markets that have seen significant new construction activity over the last five-plus years. New home supply and new home construction, especially at affordable price points, can help relieve price pressure in tight housing markets.”
