After five years of steady increases, the amount of income needed to buy a typical home in the United States has dropped for the second month in a row. Lower mortgage rates and a slower pace of home price increases are providing relief for prospective buyers, although affordability overall remains a challenge.
Key Takeaways
- The required income to purchase a median-priced home in the US dropped by 4% year-over-year in December, now standing at $111,252.
- The easing comes after five years of monthly increases in the required income.
- Mortgage rates have fallen from 7% to around 6.1%, helping to bring median monthly mortgage payments down by more than $100.
- Despite improvements, the typical US household income ($86,185) remains significantly below the level needed to afford the median-priced home.
Nationwide Affordability Trends
For December, Redfin reported that the amount of income buyers need to qualify for a median home dropped from $115,870 the previous year to $111,252. This marks a second consecutive monthly decline, signaling an early—but potentially promising—shift in housing affordability after years of rising costs.
The improvement is attributed to a combination of slightly falling mortgage rates and slowed growth in home sale prices. The median home price edged up only slightly in the last year, while interest rates on 30-year fixed mortgages declined, offering buyers lower monthly payments.
What’s Driving The Change?
- Mortgage rates: Dropped from a peak of 7% last year to about 6.1%.
- Home prices: Only modest increases, with the national median sale price in December at $426,747.
- Monthly payments: The median mortgage payment fell from $2,800 to $2,675.
Redfin evaluates homes as affordable when a buyer’s monthly housing costs are no more than 30% of their pre-tax income, factoring in home price, loan rates, and property taxes.
Local Markets: Where Is Affordability Improving?
Out of the nation’s 50 largest metro areas, affordability is on the upswing in nearly three-quarters. Leading the list is Dallas, where the income required to buy a typical home fell by 7.4%. Sacramento (-6.8%) and Jacksonville (-5.9%) also posted significant drops. In contrast, cities like Detroit (+3.6%), Chicago (+3.5%), and St. Louis (+3.0%) saw increases in the income needed.
A handful of metro areas remain within reach for typical households. In Pittsburgh, buyers need an income of $66,168, while the city’s median household income is $82,188. St. Louis and Cleveland also offer relative affordability, with required incomes below local median earnings.
The Big Picture: Is The Crisis Over?
While these trends mark a positive shift, the affordability gap persists. The typical US household falls about $25,000 short of what’s needed to comfortably buy a median-priced home. As Chen Zhao, head of economic research at Redfin, noted, the affordability crisis is "easing, but not over"—and prospective buyers still face challenges like economic uncertainty and potential job losses.
Looking ahead, any sustained relief for buyers will depend on continued stability or further drops in borrowing costs, paired with steady or slower home price growth.