Housing market strain: Buyers need an 86% income boost to keep up with home prices

Want more housing market stories from Lance Lambert’s ResiClub in your inbox? Subscribe to the ResiClub newsletter. Over the past few years, we’ve witnessed the fastest-ever deterioration in housing affordability. To understand the current affordability pinch, just look at the updated analysis published by the Federal Reserve Bank of Atlanta recently. The U.S. median household income jumped from $65,925 in January 2020 to $85,255 in August 2024. Over that same period, however, the “qualified income” necessary to afford the U.S. median home went from $64,257 to $119,870. Click here to view an interactive version of the chart below. In other words, the U.S. median household income increased 29.3% since January 2020. But the income needed to keep up with the rise in costs to own a median-priced U.S. home went up by 86.6%. During the pandemic housing boom, housing demand surged rapidly amid ultralow interest rates, stimulus, and the remote work boom. Federal Reserve researchers estimate “new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.” Unlike housing market demand, housing supply isn’t as elastic and can’t ramp up as quickly. As a result, the heightened demand drained the market of active inventory and overheated home prices. U.S. home prices in July 2024 were a staggering 53.4% above January 2020 levels. That overheated home price growth, coupled with the ensuing mortgage-rate shock—with the average 30-year fixed-mortgage rate jumping up from 3.0% to over 6.5%—has created the fastest-ever deterioration in housing affordability.