Quarterly Analysis: Salary Required to Buy a Home

The income needed to purchase a median-priced existing home leapt in the second quarter of 2022, as sharply higher mortgage rates and still-rising home prices continue to plague potential homebuyers.

August 24, 2022 - 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 second quarter of 2022. The report uses 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 qualify for a median-priced home in each market.

A significant increase in mortgage rates accompanied by another spike in median home prices sharply decreased housing affordability in the second quarter of 2022. Mortgage rates increased by 147 basis points (1.47%), the equivalent of a 36.4 percent increase in the interest rate when compared to the first quarter. Across the 50 metros HSH tracks, the median home price increase was 10.81% compared to the first quarter of 2022, with price increases ranging from as little as 1.33% in the San Jose, CA market to as much as 22.02% in the Milwaukee metro area.

Increased home prices aren't a recent phenomena; they have been increasing for a number of quarters now, and accumulated price increases compared to a year ago are considerable. Nationally, the median price of a home sold was 15.6% higher in the second quarter of 2022 than in the same period in 2021, and 11 of the 50 metros HSH tracked showed 20% year-over-year price increases.

Compared to last year, the combination of higher mortgage rates and higher prices has combined to lift the income needed to buy a median-priced home by significant amounts across the board. By way of example, someone purchasing the national median-priced existing home in 2Q22 would have needed 40.72% more income than a homebuyer in the same period in 2021. Twenty-four of the 50 metros for which HSH did calculations saw required income increase in excess of 40%, and four required a salary increase in excess of 50% compared to last year. Even with incomes rising, they are falling far short of keeping pace with spiraling housing inflation.

Decreasing affordability is dampening housing sales. Existing home sales began the year at a 6.49 million (annualized) rate of sale; this has diminished to a 4.81 million rate by July, and forward-looking indicators don't suggest that improvement is likely. At the same time, home prices continue to increase, if perhaps at a lessening pace, but mortgage rates probably won't have much (if any) space to fall meaningfully or durably until inflation becomes far better behaved.

The most and least affordable metro areas in the salary analysis (assuming a 20% downpayment):

Salary calculations using a 10% downpayment and including PMI are also provided for each area.

Main takeaways from the updated analysis:

• The second quarter of 2022 saw a worsening in affordability compared to the first quarter, as all 50 metros saw home price increases during the second quarter, while mortgage rates rose by a significant amount during the period.

• Home prices remained in an uptrend. All 50 metro areas in HSH's calculations saw price increases in the second quarter of 2022 compared to the first. The second stanza of each year encompasses the traditionally-competitive spring homebuying "season", and it's common to see price increases during the businest housing period of the year. Quarter-over-quarter price gains ranged from 1.33% to as much as 22.02% across the top 50 metro areas.

• Home affordability declined significantly during the period. Incomes needed to purchase a median-priced home rose considerably from the first quarter of 2022; the most modest increase was $11,521.50 in the Pittsburgh metro area, while the most substantial increase was seen in the nation's most second most expensive housing market (San Francisco, CA), where buyers needed $$68,505.68 more income this quarter to buy a median-priced home of $1,550.000 compared to what was required in the first three months of the year.

• Mortgage rates powered markedly higher during the period. Already considerably higher in the first quarter of 2022, mortgage rates leapt again as inflation raged and the Federal Reserve began to lift short-term interest rates. The 147 basis point increase in the adjusted-to-par 30-year fixed-rate mortgage used in the calculation lifted it to 5.48%, the highest it has been since the fourth quarter of 2008.

• Rising home prices mean a greater need for borrowers to save. As the goalposts keep moving, rising home prices increase the difficulty of saving for a downpayment to buy a home. The 20% we use in our base calculations (or even 10% with PMI, found on each metro-area panel) are increasingly unattainable, even for diligent savers. To make a a 20% downpayment for a national median-priced home in the second quarter of 2021 would have required $71,540; one year later, and it'll now take $82,700 to hit this level. A potential homebuyer would have had to accumulate another $930 per month -- $216 per week -- just to keep up with the rise in hmoe prices.

• There remains little available to buy, but this is changing a bit. At the current rate of sale, the National Association of Realtors estimated that there were about 2.6 months of supply on average to meet demand in the second quarter, up from about 1.7 months in the first. While this still remains below optimal levels of supply, the trend is in the right direction, with July inventory levels now showing 3.3 months of supply of homes for sale.

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

With affordability on the wane, potential homebuyers of more modest means looking to buy homes may struggle to come up with a down payment and closing costs, especially 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.