Across the Nation, Rising Prices and Increased Interest Rates Limit Access to Homeownership
The combined increases in home prices and mortgage interest rates over the past year have made buying the typical home much more expensive across the country, as reported in our recent State of the Nation’s Housing report.
At the time of publication, the US median existing home sales price was up 15 percent year-over-year, from $340,700 in April 2021 to $391,200 in April 2022. Meanwhile, average 30-year mortgage interest rates were up nearly two percentage points, from 3.05 percent in April 2021 to 4.98 percent in April of 2022. These changes pushed up mortgage costs significantly. A potential homebuyer looking to take out a 30-year mortgage on the median-priced home in April 2022 would have faced mortgage payments of $2,020 per month, up from $1,400 a year earlier (Figure 1). Adding in costs for property taxes, property insurance, and mortgage insurance, the total monthly owner costs were nearly $2,800.
Figure 1: Recent Interest Rate Hikes Have Further Eroded Affordability
|April 2021||April 2022||Change 2021-2022|
|Interest Rate (Percent)||3.06||4.98||1.92|
|Median Home Price (Dollars)||340,700||391,200||50,500|
|Downpayment & Closing Costs||22,100||25,400||3,300|
|Monthly Mortgage Payment||1,400||2,020||630|
|Total Monthly Owner Costs||2,060||2,780||720|
|Annual Income Needed||79,600||107,600||28,000|
Note: Estimates assume a 3.5% downpayment on a 30-year fixed-rate loan with zero points, 0.85% mortgage insurance, 0.35% property taxes, 1.15% property taxes, 3% closing costs, and a maximum 31% debt-to-income ratio.
Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; NAR, Existing Home Sales.
Based on these monthly costs, a potential homebuyer would have needed an income of at least $107,600 to qualify for a mortgage on the median-priced home in April of 2022, up from $79,600 in April 2021. This sharp rise in the income threshold priced out roughly 4 million renter households over the past year.
Because home prices vary depending on where you live, this interactive map shows how much income is needed to buy the median-priced home across the country. In markets where the typical home is much more expensive than the US median, a household needs a much higher income. For example, in the San Francisco metro, the median home price is $1.5 million, which means a household would need an annual income of over $400,000 to afford the steep $10,700 in monthly owner payments (Figure 2). In fast-growing Austin, a household would need an annual income of $165,000 to qualify for a loan on the $600,000 median priced home. This is nearly twice as high as the $84,000 needed to buy the median-priced home in nearby Houston. In all, total monthly payments were up by at least $500 over the past year in 70 of the 100 largest metro areas, including 30 metros where owner costs jumped by more than $1,000 per month.
Figure 2: High Incomes Are Needed to Afford Homes in Many Metros
More and more households are being priced out of homeownership and its related benefits – such as the potential to build significant wealth though home equity – at a time when households of color need increased access to narrow wide racial gaps. At last measure, the homeownership rates for Hispanic households (48.3%) and non-Hispanic Black households (46.0%) were 26 and 29 percentage points lower than for non-Hispanic white households (74.6%). Higher barriers to homeownership make it more difficult and costly for policy to help reduce these longstanding inequalities.