Majority of Americans cannot afford a mortgage on a new home

With the nationwide median price of a new home at an all-time high and price growth continuing to outpace wage growth, a new study by real estate tech platform Knock found that a majority of Americans cannot afford a newly constructed home.

Assuming a purchase price of $390,900 (the median price of a new home in August) and a 6% downpayment, the minimum household income required to get mortgage for a newly constructed home is slightly less than $80,000. That’s a price point that nearly 60% of American households can’t meet, according to Knock.

To underscore this issue, Knock looked at the 22 largest metro areas across the country with the highest percentages of new-home sales. These markets were evaluated and ranked based on the required household income to afford the median new-construction mortgage in the area. Median household income figures for each metro were used to determine the percentage of households within the area that aren’t able to afford the median mortgage.

Sacramento (with 80% of households unable to afford newly built homes), Miami (80%), Las Vegas (65%), Phoenix (63%) and Denver (62%) were found to have the highest shares of households that can’t afford the price point of a new-home mortgage. Of the 22 cities in Knock’s analysis, 21 were deemed too costly for at least half of all households when buying a newly built home.

San Antonio, at 49%, was the only one where more than half of residents were able to afford a mortgage on a newly built residence. Joining San Antonio as the most accessible cities for buying new-construction homes were Oklahoma City (50%), Raleigh (50%), Minneapolis (51%), Atlanta (52%) and Dallas (52%).

Knock also found that the national average premium for buying a new home compared to an existing one was $68,454. Nashville had the smallest gulf between new-home and existing-home prices at $1,300, followed by Raleigh ($4,970), Denver ($9,013), San Antonio ($9,200) and Dallas ($9,847).

The largest premiums between new and existing homes were found in Miami ($310,000); Baltimore ($186,726); Austin ($126,192); Indianapolis ($109,185); Washington, D.C. ($100,000); and Sacramento ($100,000).


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