Zillow: Income needed to comfortably afford a home is up 80% since 2020

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We just passed through a historic deterioration in housing affordability. That’ll happen when the average 30-year fixed mortgage rate spikes from 3% to 7% just after national home prices surged over 40% during the Pandemic Housing Boom.

The result, of course, is that today’s home buyers need to earn a significantly higher income to get a foot in the door of today’s housing market.

A new report from Zillow says American households need to make at least $106,536 a year to comfortably afford the typical priced U.S. home. That’s up from $59,046 in 2020.

That’s a tough ask for many considering the median U.S. household earns an estimated $81,216. Up from $65,925 in 2020.

“The income needed to comfortably afford a home is up 80% since 2020, while median income has risen 23% in that time,” wrote Anushna Prakash, an economic research data scientist at Zillow, in the report.

When it comes to housing affordability, some markets are worse off than others.

The San Jose metro area—home to tech giants like Facebook and Apple—is the least affordable market. Households there would need to earn $454,296 to comfortably buy a home priced around the median in that market.

Not too far behind, are other high-cost metros like San Francisco ($339,864), Los Angeles ($279,250), San Diego ($273,613), and Seattle ($213,984).

According to Zillow, there are only three major U.S. housing markets where buying a home priced around the median is “affordable” to a household making the median income for the region: Pittsburgh, St. Louis, and Detroit.

Click here to view a spreadsheet with Zillow’s analysis for the 100 largest housing markets (including income levels)

How Zillow explained its methodology: “Income needed to afford a home with 10% down is defined as the income needed to afford the total monthly payment on the typical home [in that local market]. The total monthly payment is based on the monthly mortgage payment, insurance, property taxes, and annual maintenance costs of the home.”

On Thursday, Morningstar emailed their latest economic and housing outlook to ResiClub. The report shows that Morningstar still isn’t buying the “higher for longer” narrative.

Morningstar’s forecast for the average 30-year fixed mortgage rate 👇

2024: 6.5%

2025: 5.0%

2026: 4.5%

2027: 4.25%

2028: 4.25%

"The narrative that the U.S. economy has shifted to prolonged higher-interest rate regime versus pre-pandemic rates is incorrect, in our view" wrote Morningstar analysts.

Morningstar analysts added that: “Interest rates have soared over the past year as expectations of monetary policy tightening have built up and begun to play out. However, we think the Fed will receive the green light from falling inflation to pivot back to easing in mid-2024. The Fed will need to lower interest rates to avert a greater fall in housing activity and eventually generate a rebound. This should allow GDP growth to reaccelerate in late 2025 and 2026. By 2027, we expect monetary policy with a neutral stance, with the federal-funds rate and the 10-year Treasury yield in line with our assessment of their long-run natural levels.”

The rest of Morningstar’s economic forecast 👇