Quarterly Analysis: Income Required to Buy a Home

Firmer mortgage rates and record high home prices in the second quarter of 2024 meant a general worsening in home affordability in the nation's top 50 metropolitan housing markets.

August 20, 2024 - HSH.com, a trusted online resource for mortgage data, content and expertise updated its analysis of the income required to afford a median-priced home in the top 50 metropolitan areas for the second quarter of 2024. The review utilizes the latest quarterly existing home price data from the National Association of Realtors (NAR), incorporates local property tax and homeowner’s insurance costs, and calculates the income needed to buy a median-priced home in each market.

In the second quarter of 2024, existing home prices hit new record high levels, and mortgage rates moved higher after starting the year with a downward step. The combination of the two worsened housing affordability conditions, and homebuyers turned away from the market in what is normally the busiest period of the year for home sales.

Referenced against the first quarter, median home prices were higher in all 50 of the top 50 major metropolitan in the second quarter, with quarterly price increases that ranged from "only" 2.1% in the Phoenix AZ metro area to as much as 17.61% in the Cleveland OH metro area, with a median quarterly increase across all 50 metro areas of 7.04%. In looking at the more commonly-cited annual change, three metro areas actually saw lower home prices compared to the second quarter of 2023, with Denver CO (-0.68%), Cleveland OH (-1.31%) and San Antonio TX (-3.68%) markets all slightly lower than the same period one year ago.

The second quarter of each year typically features the highest home prices of the year, as competition for homes heats up during the "spring homebuying season." A new record for the median selling price of an existing home was reached in both May and June, and strong price gains this year came despite sales of existing homes declining is each of the three months in the second quarter.

Price increases had been fostered by a lack of homes to purchase, as there has been a reasonable level of demand despite high rates and costs. But the lean inventory situation steadily improved over the three-month period, with the 4.1 months of supply available at the present rate of sale in June the highest level it has been in more than four years. The 1.32 million units available for to buy in June was up 3.1% from May and 23.4% from June 2023, and rising supply should have helped attenuate price pressures, but hasn't as yet.

The $114,019.34 income needed to purchase a "national" median-priced home in the second quarter of 2024 was $9,724.79 more than in the first quarter, and was also 8.3% higher than the $105,301.89 needed in the second quarter of 2023.

The most and least affordable metro areas in the income-required analysis (assuming a 20% down payment):

Salary calculations using a 10% downpayment and including PMI are also provided for each of the 50 metro areas.

Some takeaways from the updated analysis:

• The second quarter of 2024 saw a marked decrease in home affordability.All of the top 50 metro housing markets saw homebuyers need more income to buy a median-priced home in the second quarter of 2024 compared to the first quarter of the year, while mortgage rates moved higher again,

• Home prices moved higher in all of the top 50 housing markets. Quarterly price increased ranged from as little as 2.1% to as much as 17.61%. The average increase in median selling prices across all tracked metros was over 7% compared to the first quarter of 2024.

• Incomes require to buy a home leapt during the period. Compared to the first quarter, the income needed to purchase a median-priced existing was higher in all 50 metro areas. Increases ranged from needing an additional $4,106.35 in income to buy a median-priced home in Oklahoma City (one of the most affordable metros) to as much as $47,816.30 in the San Jose metro areas, the nation's most expensive housing market. Referenced against a year ago, a buyer would have needed "only" 3.19% more income to buy a home in the San Antonio metro area to as much as bump in salary of 17.21% to secure a median-priced home in the Richmond VA market. Twenty-seven other metro areas required double-digit increases in income to keep pace with rising housing costs.

• Mortgage rates were higher again in the second quarter. In the second quarter of 2024, the average 30-year fixed-rate mortgage used in HSH's calculation was 25 basis points (0.25%) higher than in the first quarter, averaging a flat 7% for the three months ended June.

• Still-high home prices mean a greater need for borrowers to save. With home prices still rising in many areas, potential buyers need greater savings to hit a desired level of down payment. A 20% down payment on a nationally median-priced home of $422,100 requires $84,420 in cash, and a potential buyer will still need thousands of dollars more for closing costs and any required reserves. Since HSH's calculations work from a given home price, a borrower who puts only 10% down ($42,210) will face both a larger mortgage amount and costs for Private Mortgage Insurance -- lifting the income needed to buy the home by $17,199.83.

• Supplies of homes to buy continue be thin, but there are hopeful signs of improvement. At the average rate of sale during the period, the National Association of Realtors estimated that there were about 3.8 months of supply of homes available on average in the second quarter of 2024. This was an improvement from the average three months of inventory at the present rate of sale during the first quarter. The National Association of Realtors reported that there were 1.32 million homes available for sale at the end of June, up 3.1% from May and 23.4% higher than a year ago. More homes for sale should help temper home price increases unless demand flares again, which is a possibility given lower mortgage rates over the summer.

  These items and other observations are discussed in greater detail in the “Latest Analysis” component of the report.

  Potential homebuyers are encouraged to see how much home they can afford to buy using HSH's Home Affordability Calculator.

  With affordability still waning, potential homebuyers of more modest means looking to buy homes may struggle to come up with a down payment and closing costs, particularly in heated markets. Help making the jump to homeownership is often available but is tricky to find if you don't know where to look. To help potential homebuyers, HSH offers its database of Homebuyer Assistance Programs by state, where information about these valuable programs, vital website addresses, contact info and more can be found.

  Find the lists here for the 25 most expensive and 25 least expensive metropolitan areas with display maps for each list.

  Since 1979, HSH.com has been a trusted mortgage resource for consumers seeking independent, objective and expert-level information, forecasts and data. HSH.com offers unique analysis, calculators, tools and content to help demystify first mortgages, home equity loans and lines of credit, reverse mortgages and more. HSH.com empowers homebuyers and homeowners to fully understand their home financing choices and provide opportunities for them to engage with partners to execute their transactions. Keith Gumbinger, mortgage expert and vice president of HSH.com, is available for interviews at your request.

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