Quarterly Analysis: Salary Required to Buy a Home

An unrelenting rise in mortgage rates offset modest seasonal softening in home prices in some locations in the third quarter of 2023. The end result is that home affordability declined again across the top 50 metropolitan housing markets.

November 15, 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 third quarter of 2023. 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 qualify for a median-priced home in each market.

Compared to the second quarter, seasonal changes in home prices saw them decline somewhat in 19 of the top 50 metro housing markets, a figure somewhat below what is typically seen in the third quarter of each year. Where they occurred, declines were small, ranging from 0.22% in the Denver, CO metropolitan area to as much as 2.74% in the Memphis, TN region. In markets where home prices saw increases, they were as slight as 0.31% in the Minneapolis, MN area and as robust as 13.71% in the greater Los Angeles, CA metro.

Home prices typically begin to seasonally soften in the third quarter of each year, presenting potential homebuyers with slightly more favorable prices compared earlier periods in the year,

Mortgage rates have no real seasonality, although demand from homebuyers and homeowners can have some influence at times. Mortgage rates strode higher again in the third quarter, at one point to about 22-year highs, and the period overall saw the average conforming 30-year fixed-rate mortgage increase by more than a half percentage point for the period. This was more than enough to erase any benefit of lower prices in any market where they occurred. As a result, home affordability took a hit again, and the income needed to buy a national median priced home moved up to $111,176.20, up by $5,874.31 compared to the second quarter and some 16.25% above already-high year-ago levels.

The fourth quarter of the year often features somewhat lower housing prices, but the number of home available to buy tends to thin out to a greater degree during the holiday season as potential sellers stay put during the holiday season. With inventories of homes to buy already lean, this will tend to help support home prices to a greater degree than is typical during the period. Even if the season declines do turn out to be normal (or more) they will be of little help to homebuyers if mortgage rates don't decline much from present levels.

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 third quarter of 2023 saw a decrease in affordability compared to the previous quarter. Higher mortgage rates during the period and fewer seasonal declines in home prices than are typically season saw the income needed to purchase a median-priced home compared increase in all of the top 50 housing markets compared to the second quarter.

• Home prices generally moved higher again. The third quarter of each year often sees the start of seasonally lower home prices, but that downdraft was both less widespread and less strong than is often seen during the period. Small home price declines were seen in 19 of 50 markets (38%), while increases were notched in 62% of the top 50 metro areas. Last year at this time, 41 of 50 metros (82%) saw lower prices and were considerably lower on balance where they occurred.

• Home affordability declined across 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 all of the top 50 metros, with income requirements to buy a median-priced home seeing increases that ranged from 2.53% in the Austin, TX metro are to as much as 30.23% in the San Jose metro area, the most expensive market in the group.

• Mortgage rates flared higher again during the period. In the third quarter of 2023, the average 30-year fixed-rate mortgage used in HSH's calculation was 53 basis points (0.53%) higher than in the second quarter. At 7.04%, the rate was the highest quarterly rate since the first quarter of 2002.

• Still-high home prices mean a greater need for borrowers to save. With home price still rising in most areas, potential buyers will need greater savings to hit a desired level of down payment. A 20% down payment on a median-priced home of $406,900 requires $81,380 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 ($40,690) faces a larger mortgage balance and costs for PMI -- lifting the income needed to buy the home by $16,618.80.

• Thin supplies of homes to buy continue to keep prices firm and vex potential buyers. At the average rate of sale during the period, the National Association of Realtors estimated that there were about 3.3 months of supply available at the sales pace for the period, up from 3 months in the second quarter. However, that's a bit misleading, as home sales were also slower during the second quarter. The NAR note that the number of homes for sale at the end of September was actually 8.1% 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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