Mortgage rates are still low, making it a seemingly great time to buy a home.
But aspiring home buyers still need to overcome one major obstacle before they lay eyes on their dream home: Can they afford it?
typical U.S. worker now needs to earn $52,700 a year to be able to
afford the monthly payments for a home worth the national median of
$240,700, according to a recent report released by
HSH.com, a mortgage information website.
threshold can look very different from one city to the next. For
instance, someone in Atlanta only needs to earn about $40,000 to afford a
monthly mortgage payment — one of the most affordable cities on the
list. But someone trying to buy a house in Washington, D.C., would need
to earn twice as much. In San Francisco, they would need to earn four
times as much.
calculated how much homeowners need to earn each year so that the
monthly mortgage payments for the median-priced home — including the
principal, interest, taxes and insurance — would take up no more than 28
percent of their monthly gross income. (Financial advisers generally
recommend that housing costs take up no more than a third of your pay.)
The study also assumed that home buyers gave a 20 percent down payment.
make matters more difficult, as home prices rise, the salary needed to
afford a home is rising too. (And in many cities, those home prices are
much faster than wages.) The
average salary needed to afford a home this year is up 5 percent from
2014, when consumers needed a salary of $50,211 to afford the
median-priced home of $212,000.
Home buyers across the country
may have noticed a similar trend as home prices have increased, says
Keith Gumbinger, vice president of HSH.com. Home values rose at a faster
clip in some parts of the country where there aren’t as many homes for
sale, Gumbinger says.
For instance, home buyers in Denver now
need to earn $72,847 a year to afford the home worth the median $394,400
— up from the $63,664 salary needed in 2014, when the median home value
was $316,300. In San Francisco, home buyers now need to earn at least
$161,947 to afford the median-priced home, up from $150,511 in 2014.
“It’s a good time to buy a house in theory,” says Svenja Gudell,
chief economist at Zillow, a real estate listing website. “But
practically, it’s very hard actually getting there.”
Higher home prices, rising rental costs and a shortage of affordable homes may have some renters feeling like home ownership is increasingly out of reach, Gudell says.
Renters’ confidence in their ability to buy a home has dropped over the last two years, according to areport from Zillow
released last week. Only 38 percent of renters said it was a good time
to buy a home in July, down from 47 percent in January 2014.