Buying a home has never really been an inexpensive prospect. But in recent years, many buyers have faced issues with affordability. The National Association of Realtors reports that in 2021, buyers who purchased homes had an average income of $88,000. By 2022, that number had jumped to $107,000.
Meanwhile, for first-time home buyers, it took an average income of $71,000 to purchase a home in 2021. In 2022, it took an average income of $95,900. That’s an almost $25,000 increase. Ouch.
Higher home prices and mortgage rates are to blame
Why has the amount of earnings needed to buy a home increased so much? It’s simple: Homes have gotten more expensive. During the second quarter of 2021, the median U.S. home sale price was $382,600. During the second quarter of 2022, it was $433,100.
Mortgage loans have also gotten a lot more expensive to sign in recent years. In 2021, mortgage lenders were still offering up low rates on home loans. But mortgage rates rose sharply in 2022 and have stayed high ever since.
In early 2021, the average 30-year mortgage rate was under 3%. By the summer of 2022, the average 30-year mortgage rate surpassed 5%. And rates have sat in the 7% range for much of 2023.
The combination of higher prices and mortgage rates has forced a lot of would-be buyers to back away from the market. For some, buying a home just isn’t feasible based on what they earn.
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Is homeownership out of reach for you?
If you earn a moderate wage, you might assume that buying a home today is out of the question. But there may be ways to make a home purchase possible.
First, you could focus on smaller starter homes that aren’t as updated. While you don’t necessarily want to buy a home with the intent to move in a year or two, you’re also not committing to living in your home forever. So if you’re willing to buy a starter home, you could build home equity with the goal of upsizing a number of years down the line.
Expanding your search to different neighborhoods could also make buying a home more feasible on a limited income. Rather than focus on highly desirable neighborhoods with top amenities, look at areas that are perfectly nice but may not have a built-up town center with restaurants and cafes. It may be reasonable to buy a home in a less-developed town and drive 10 minutes when you want to grab dinner.
Also, think about applying for different loan programs that might make a home more affordable for you today. For example, if you’re a first-time buyer and you can’t swing a large down payment, consider an FHA loan. This program makes it possible to put as little as 3.5% down if you have a credit score of at least 580.
It’s not so surprising to learn that the amount of income needed to afford a home purchase has risen so dramatically. But don’t write off homeownership just because your wages aren’t super high. You may be able to get pretty far with your current income if you’re willing to make some compromises.