Quarterly Analysis: Salary Required to Buy a Home

There was a general improvement in home affordability to start 2024, but the benefit of lower mortgage rates was muted by still higher home prices in about half of the nation's top 50 metropolitan housing markets.

May 15, 2024 - HSH.com, a trusted online resource for mortgage data, content and expertise updated its analysis of the salary required to afford a median-priced home in the top 50 metropolitan areas for the first 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.

Although the prospects for cuts in interest rates by the Federal Reserve diminished during the period, mortgage rates still managed to be materially lower in the first quarter of 2024 compared to the final quarter of 2023, helping to improve home affordability.

However, the existing home market still features far too few affordable and desirable homes to buy, and thin inventories of homes to sell have served to keep home prices both high and well supported. In turn, this meant that seasonally lower prices were less widespread than normal this year, erasing at least some of the beneficial improvement imparted by lower financing costs.

Referenced against the fourth quarter, median home prices were higher in 24 of the top 50 major metropolitan areas to start 2024, with the median seasonal price discount across all market coming in at exactly zero. By comparison, during the same period a year ago, just 11 metros saw higher home prices, and home prices across all 50 areas were lower by a median 2.06%.

Home prices typically begin their seasonal softening in the third quarter of each year, with median home prices usually bottoming the fourth quarter. This is typically followed by firming prices as the winter fades during the first quarter of the new year. However, the start of 2024 featured more markets with higher prices than is often seen to start the year.

As the calendar changed to 2024, and with inflation concerns waning, financial markets were betting on as many as six cuts in short-term interest rates by the Fed this year. This helped mortgage rates to fall from late October's 23-year peak by more than a percentage point into the first quarter of 2024, and the average rate for a conforming 30-year fixed-rate mortgage used in the majority of HSH's calculations declined by more than half a percentage point for the entirety of the first quarter.

While the $104,339.02 income needed to purchase a "national" median-priced home in the first quarter of 2024 was $5,025.65 less than in the third quarter, it was nonetheless also 7.39% higher than the $97,161.10 needed at the start of 2023.

Existing home sales managed to firm up a bit in the first quarter of 2024, averaging an annualized 4.19 million over the first three months of the year, up from a 3.88 million average annual rate in the final quarter of 2023. As measured by months of supply at the current rate of sale, supplies of homes available to buy were leaner in early 2024 than in the closing quarter of last year.

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:

• In the aggregate, the first quarter of 2024 saw improvement in home affordability. Forty-seven of the top 50 metro housing markets saw homebuyers need less income to buy a median-priced home in the first quarter of 2024 compared to 4Q23.

• Home prices moved higher in about half of the top 50 housing markets. Twenty-four metro areas saw higher median home prices and 24 saw lower, with two metro areas posting no change to start 2024. As such, there was a fair bit of disparity in the change in median home prices, with quarterly increases as large as 6.49% in the Memphis TN metro area and quarterly declines as large as 6.94% in the greater Los Angeles CA area. Across all metros, the median change in prices was zero for the quarter.

• Home affordability improved less than it might have. The income needed to purchase a median-priced existing was lower in 47 metro areas and higher in just three. That said, more markets featuring higher home prices to start this year than last limited the beneficial effect of lower mortgage rates. The quarter-to-quarter improvement in affordability is also only a relative win for homebuyers, as only Cleveland, OH actually saw lower year-over-year housing costs. Compared to a year ago, the income required to buy a median-priced existing home was higher across the remaining 49 metro housing markets; increases ranged from 1.78% in San Antonio, TX to as much as 21.43% in the San Jose CA metro area

• Mortgage rates were lower to start 2024. In the first quarter of 2024, the average 30-year fixed-rate mortgage used in HSH's calculation was 55 basis points (0.55%) lower than in the fourth quarter. It was the first time since the first quarter of last year that mortgage rates declined compared to the prior quarter, although the average rate of 6.75% was still both quite high and well above the same period in 2023.

• 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 $389,400 requires $77,880 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 ($38,940) will face both a larger mortgage amount and costs for Private Mortgage Insurance -- lifting the income needed to buy the home by $15,580.42.

• 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 months of supply of homes available on average to start 2024. While this was down from 3.4 months to close 2023, it was far better than the average of 2.6 months during the same period seen a year ago, In a hopeful sign, the National Association of Realtors reported that there were 1.11 million homes available for sale at the end of March, up 4.7% from February and 14.4% higher than a year ago.

  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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