Quarterly Analysis: Salary Required to Buy a Home

Compared to a year ago, the income needed to purchase a median-priced existing home rose again during the second quarter of 2023, as higher mortgage rates and seasonally-higher home prices worsened home affordability.

August 29, 2023 - 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 2023. 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.

The second quarter of 2023 again brought less favorable conditions for potential homebuyers. The so-called "spring homebuying season" occurs during the second quarter of each year, bringing more buyers into the market, eroding or erasing seasonal softness in home prices from the winter months. This year, prices were well supported again, as the number of existing homes for sale remained at very low levels.

At the same time, mortgage rates -- already elevated -- ticked higher again during the period. The combination of higher prices and higher mortgage rates curtailed affordability again; the salary needed to be a national median-priced home rose from $97,161.10 in the first quarter to a new high of $105,323.58 in the second, and more than 10% higher than a year ago.

Homebuying conditions seem unlikely to improve very much in the near term, although seasonally-lower home prices often appear in the third quarter. That said, mortgage rate have already touched 22-year highs for this period, of even if median prices do settle, the increase in mortgage rates will probably more than offset any potential reduction in income.

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 area.

Main takeaways from the updated analysis:

• The second quarter of 2023 saw a decrease in affordability compared to the previous quarter. Higher mortgage rates during the period and typical seasonal increases in home prices lifted the income needed to purchase a median-priced home compared to the first quarter in all but two of the top 50 housing markets.

• Home prices moved higher again. Home prices are typically at their highest point of the year in the second quarter, and this year is likely to follow that pattern. After a few quarters of declining home prices across most areas, all 50 metros saw a bump in prices from the first quarter of 2023, with increases ranging from 3.64% to as much as 19.49% Compared to a year ago, home prices were still lower than last year's peak levels in 30 of 50 metros.
• Home affordability declined across nearly all of the top 50 metro areas during the period. The income needed to purchase a median-priced existing home was sharply higher this quarter than last, both nationally and in all 50 metros tracked by HSH. On a year-ago comparison basis, the income needed to purchase a median-priced home was higher in 96% of the top 50 metros, with the national figure reaching a new high.

• Mortgage rates moved higher during the period. In the second quarter of 2023, the average 30-year fixed-rate mortgage used in HSH's calculation was 14 basis points (0.14%). At 6.51%, the rate was the second highest quarterly rate since the third quarter of 2007, surpassed only by the 6.84% seen in the fourth quarter of 2022.

• Still-high home prices mean a greater need for borrowers to save. The renewed upward press for home prices means potential buyers will need greater savings to hit a desired level of down payment. A 20% down payment on a median-priced home of $402,600 requires $80,520 in cash, and a potential buyer will still need thousands of dollars more for closing costs and required reserves. Since HSH's calculations work from a given home price, a borrower who puts only 10% down ($40,260) faces a larger mortgage balance and costs for PMI -- lifting the income needed to buy the home by $15,695.42.

• Thin supplies of homes to buy continue to be a serious issue. At the average rate of sale during the period, the National Association of Realtors estimated that there were about 3 months of supply available at the sales pace for the period, up from 2.7 months in the first quarter. However, that's a bit misleading, since home sales were also slower during the second quarter. The NAR note that the number of homes for sale at the end of June was 13.6% below year-ago levels.

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

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