Quarterly Analysis: Income Required to Buy a Home

Lower mortgage rates and seasonally-lower home prices in the third quarter of 2024 lifted home affordability in nearly all of the nation's top 50 metropolitan housing markets.

November 12, 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 third 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.

Compareed to one year ago, the third quarter of 2024 saw an improvement in relative home affordability in 28 of the nation's 50 most populated metropolitan areas. This happenstance was a combination of mortgage rates that were lower than both the second quarter of 2024 and the third quarter of 2023. In comparing only the quarter-to-quarter change, the income needed to purchase a median-priced home was lower in 48 of 50 areas.

Compared to the second quarter of 2024, typical seasonal cooling saw median home prices lower in 32 metro areas. In the 18 other areas where prices increased, gains were mostly minimal, excepting a 10.8%4% increase in the Los Angeles CA metro area and an 8.62% rise in the Buffalo, NY market. Of the of the remaining 16 metro areas that posted home price gains, half had increases of less than a percentage point, with median home prices in several markets virtually unchanged.

Mortgage rates were measurably lower during the third quarter than in the second. The 6.51% quarterly average for a conforming 30-year FRM was 49 basis points (0.49%) lower than the second quarter and 53 basis points below the same period one year ago. For the two markets where a "jumbo" mortgage to finance a median-priced home even after a 20% down payment, the average rate was 6.88% in the third quarter, 47 basis points lower than in the second quarter (and -0.40% below 3Q23).

Lower mortgage rates and lower home prices are a key to improving affordability, but it's unlikely to be a path of regular or consistent improvement for either component. Increasing supplies of homes to buy should help sales to modestly improve while tempering price increases, but incomes still need time to rise and catch up to (let alone overcome) the extraordinary decline in home affordability over the last few years.

In the current "national" calculation, buying a $418,700 median home price with a 20% down payment ($334,960 loan amount) using a 30-year mortgage with a rate of 6.51% requires an annual income of $108,567.27 to qualify once typical tax and insurance costs are included. This is $2,471.52 lower than in the third quarter of last year, and $5,452.07 lower compared to the second quarter. While affordability improved both instances, the estimated national median family income still falls below this level, so affordability if still out of balance despite improved conditions for potential homebuyers.

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 third quarter of 2024 saw a marked increase in home affordability compared to the second. Forty-eight of the top 50 metro housing markets saw homebuyers need less income to buy a median-priced home. Twenty-eight metro areas actually improved affordability compared to the same period a year ago.

• Home prices moved down in 32 of the top 50 housing markets. Home prices often begin their typical seasonal declines during the third quarter of each year. Of the 18 metro areas that saw home price increases, tha vast majority were modest, but two outliers posted very strong gains.

• Incomes require to buy a home declined during the period. Except the Los Angeles CA and Buffalo NY metros, and compared to the second quarter, the income needed to purchase a median-priced existing in the third quarter of 2024 was lower in 48 of 50 metro areas. Nationally, the quarterly decrease in the income needed was $5,247.07 to $108,567.27, and there were eight markets where the decline was in excess of five figures. Compared to the third quarter one year ago, more that half of the nation's top 50 housing markets required less income to buy a median-priced single-family home.

• Mortgage rates were lower in the third quarter. In the third quarter of 2024, the average 30-year fixed-rate mortgage used in HSH's calculation was 49 basis points (0.49%) lower than in the second quarter, averaging 6.51% for the three months ended September.

• Still-high home prices mean a greater need for borrowers to save. Even if home prices aren't rising much or everywhere, potential buyers still need significant savings to hit a desired level of down payment. A 20% down payment on a nationally median-priced home of $418,700 requires $83,740 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 ($41,870) will face both a larger mortgage amount and costs for Private Mortgage Insurance -- lifting the income needed to buy the home by $16,476.79

• Supplies of homes to buy continue improve. At the average rate of sale during the period, the National Association of Realtors estimated that there were about 4.2 months of supply of homes available on average in the third quarter of 2024, up from about 3.8 months of supply in the second quarter. In September, the NAR reported 1.39 million units available for purchase, about 23% higher than a year ago. Increasing inventory should help to temper home price increases unless mortgage rates drop smartly, as they did at the end of 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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