Thursday, June 13, 2024

Want to buy a home? You’ll need to earn at least 6 figures

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Buyers need to earn at least $107,281 to afford the $2,682 monthly mortgage payment on the typical American home, according to a new report.

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You now need to earn six figures to afford the typical American home.

That’s according to a new report from the online brokerage Redfin, which found that buyers need to earn at least $107,281 to afford the $2,682 monthly mortgage payment on the typical American home — up 45.6 percent from a year ago when buyers needed to make $73,668, following the historic rise of mortgage rates.

Between February 2020 and October 2022, the monthly payment for the average American home increased by about 70 percent, the report found, to the point that affordability challenges have slowed the market considerably in recent months. 

“High rates are making buyers rethink their priorities, as many of them can no longer afford the home they want in the location they want,” Washington, D.C. Redfin agent Chelsea Traylor said in a statement. “If you had a $900,000 budget a few months ago, rising rates mean it’s now around $700,000 — and sellers aren’t dropping their prices enough to make up for the change. So buyers are searching further away from the city in more affordable areas or waiting for prices and/or rates to come down before making a move.”

Traylor said she encourages her clients to adopt a long-term strategy and think about building wealth in the future.

“I’m encouraging buyers to think long-term,” she said. “Prices are unlikely to fall drastically in the long run, so buying a home now – if you can afford the monthly payment – will still help you build wealth over time, especially if you plan to live in it for several years. Even though rates are high, another advantage of buying now is the lack of competition and opportunity to negotiate with sellers.”

The minimum income to afford the typical mortgage differs from state to state, but the most eye-popping increases are in Florida, according to the report. The biggest increase was found in the city of North Port, where homebuyers now need to earn $131,535 annually to afford the typical monthly mortgage payment, up 73.9 percent from a year earlier when they only needed to earn $75,659. Miami saw the second most dramatic increase, with the typical mortgage payment now requiring an income of $128,892, an increase of 63 percent from the previous year.

The smallest increases in necessary income were seen in Chicago and the Bay Area, according to the report. Lake County, Illinois recorded the smallest increase — but buyers still need to make 33.5 percent more than they did a year ago.

The Bay Area also recorded a comparatively small increase, but the required income to buy a home there is still massive, with the typical mortgage payment of $10,071 in San Francisco, requiring a $402,821 annual income.

Email Ben Verde 

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