Salary Needed To Afford The Average US Home Rose To New Heights

Besides the listing price, many other factors go into calculating whether one can afford to buy a home.

While mortgage rates are dropping from an all-time high seen earlier in the year, the 6.67% rate for a 30-year home loan is still up significantly from the 5.81% given to homebuyers a year ago. Other factors to consider include how much of one's salary goes toward things like loans and cost of living as well as various property tax and insurance costs.

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All this is why, even as the median home price in the US fell from $379,300 in March 2022 to $375,400 in March 2023, the salary needed to afford it is higher than ever.

This Is How Much You Need To Earn To Afford A Home

According to Harvard University's annual State of the Nation's Housing study, the average monthly mortgage payment rose 30% from $1,780 to $2,300 during the same time period.

With those numbers crunched around not putting more than 43% of one's income toward housing, one would need to bring in $117,100 in total household income in order to afford the monthly payment that will add up to around $3,000 with taxes and insurance.

These numbers were at a respective $97,400 and $2,500 a year ago. While for many it is becoming less and less feasible amid higher mortgage rates, the traditional "30% rule" has for years suggested not surpassing 30% to stay financially healthy.

"Home prices have started to decline, though not nearly enough to counteract the impact of increased interest rates on costs," write the study's authors. "[...] These increased costs have left millions of households unable to afford to buy a home."

As a result, the number of households putting more than 30% of their income toward mortgage increased by 2.3 million -- the highest increase since the housing crisis of 2005-2007.

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The number of cost-burdened homeowners, or those who have to put more than 50% of their income toward maintaining their mortgage, also rose by 8.7 million and now totals 10.4% of all households.

The $117,100 number is also averaged across the country while the required salary rises significantly if one needs to live close to any major city. The San Jose-Santa Clara part of California topped the list of most expensive major cities with a $454,000 salary required to afford a median $1.6 million home.

Those renting in the New York-Newark-Jersey City area would need to make at least $178,000 if they wanted to buy a typical home priced around $577,300 while in Chicago that number drops to $84,941 for a median home of $308,905.

The mortgage rate one will get will also vary significantly from state to state and city to city but, because of these wider trends, the number of markets where one would need to earn above $100,000 to buy a home rose from 16% at the end of 2022 to 38% now.

"Because interest rates increased nationwide, would-be homebuyers in every corner of the country felt these increased costs, although the scale varied by market," write the study's authors. "In the 177 metros whose median home prices are reported by the National Association of Realtors, monthly payments on the median-priced home were up anywhere from 4 percent to 44 percent year over year in the first quarter of 2023."