Quarterly Analysis: Salary Required to Buy a Home

Higher mortgage rates and a shallower-than-typical seasonal decline in home prices challenged potential homebuyers anew in the fourth quarter of 2023.

February 21, 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 fourth 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 buy a median-priced home in each market.

With the number of home for sale still very thin and amid slack demand for houses in the fourth quarter, home prices still managed to be very well supported, with both fewer and shallower seasonal declines than typically occur in the last quarter of each year.

Referenced against the third quarter, median home prices were lower in 46 of the top 50 major metropolitan areas to close 2023. By comparison, last year during the same period all 50 metro areas saw a decline, and the median decline in sales price was 5.06%; this year, across markets that did post home price declines in the fourth quarter of 2023 the decrease was only 3.61%.

Home prices typically begin to seasonally soften in the third quarter of each year; this seasonality usually deepens in the fourth quarter, as short days and less favorable weather tends to motivate sellers to get deals done before the holidays kick in.

Although they did begin to decline meaningfully over the last half of the last quarter of 2023, mortgage rates were still higher for the quarter as a whole, having risen to 22-year highs during the period. In the end, the increase in rates for the quarter was only a mild 0.26%, but this lifted the mortgage rate used in HSH's calculations to 7.30%. Overall, the continued increase in mortgage rates was generally more than sufficient to reduce or eliminate any benefit lower home prices may have brought to a potential homebuyer. However, the income needed to purchase a median-priced home was still lower in 22 of the 50 top markets than in the third quarter.

While the $109,458.69 income needed to purchase a "national" median-priced home in the fourth quarter of 2023 was $1,580.09 less than in the third quarter, it was nonetheless 6.51% higher than the $102,771.32 needed during the same period in 2022.

The fourth quarter of the year may feature somewhat lower home prices, but the number of homes available to buy tends to thin out to a greater degree toward the end of the year as potential sellers stay put during the holiday season. With inventories of homes to buy already lean, this seasonal thinning of homes for sale in turn helped support home prices to a greater degree than is normally seen in the fourth quarter of a year. Some modest improvement in inventory levels of homes to purchase is expected for 2024.

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.

Some takeaways from the updated analysis:

• The fourth quarter of 2023 saw a general 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 28 of the top 50 housing markets compared against to the third quarter.

• Home prices moved higher again in a majority of markets. Typically, the lowest median home prices of each year are seen in the fourth quarter, but the declines were both less geographically broad and shallower than is typical. Compared to the third quarter, home prices were lower in 46 of 50 metro areas, with a median decline of 3.47%; a similar comparison for 2022 saw all 50 metros with lower prices and a median decline of 5.05%.

• Home affordability was mixed. The income needed to purchase a median-priced existing was lower in 22 metro areas and markets and higher in 28 markets, somewhat less seasonal improvement than typical. In a few cases, the seasonal reduction in income needed to purchase a median-priced home was less than 100 dollars. Regardless of any quarter-to-quarter improvement, all 50 metro areas required higher incomes to buy a home compared to year-ago marks.

• Mortgage rates were higher again. In the fourth quarter of 2023, the average 30-year fixed-rate mortgage used in HSH's calculation was 26 basis points (0.26%) higher than in the third quarter. At 7.30%, the rate was the highest quarterly rate since the second quarter of 2001. Mortgage rates touched 22-year highs during the fourth quarter but then settled back.

• Still-high home prices mean a greater need for borrowers to save. With home prices 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 $391,700 requires $78,340 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 ($39,170) will face both a larger mortgage amount and costs for Private Mortgage Insurance -- lifting the income needed to buy the home by $16,291.11.

• Thin supplies of homes to buy continue to keep prices firm and challenge potential home buyers. At the average rate of sale during the period, the National Association of Realtors estimated that there were about 3.4 months of supply of homes available, up from 3.2 months in the third quarter. However, this figure is a bit misleading, as home sales were also considerably slower in the fourth quarter than the third, sliding to a 3.80 million annual pace. For all of 2023, the NAR reported that existing home sales fell to their lowest pace since 1995, and there were 11.5% fewer homes for sale in December than November, although this was actually slightly improved compared to December 2022 levels.

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

  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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