Homebuyers Need to Earn 80% More Compared to What They Did Pre-Covid To Afford a House

With home prices soaring like anything in the past few years, the dream of owning a house has become unreachable for many today in the US. As per a new report from Zillow, homebuyers' income hasn't been able to keep pace with soaring home prices. The report reveals that people need over $106,000 to be able to afford a home in this market. Homebuyers reportedly need an income of  $47,000 to be able to buy the home, the metric is 80% higher than what homebuyers needed in January 2020, just before the Pandemic set in. "The math has changed for hopeful buyers, who are more often partnering with friends and family or 'house hacking' their way to homeownership," the report said. Prices of homes have climbed as much as 42.4% since the beginning of the pandemic, with a typical home costing about $343,000.

The median incomes have also risen just not as much as the prices. The median income has risen around 23% to $81,000. The report also revealed the surge in mortgage rates along with the home prices. Since January 2020, the monthly mortgage rates for typical homebuyers have nearly doubled. From January 2020, they are up 96.4% and now stand at $2,188 a month. This means that the rates have become soared from around 3.5% to 6.9% now.

The report says that it would take a household earning a median income of 8.5 years — a year longer 2020 estimates to be able to save for a home.

"It's no wonder, then, that half of first-time buyers say at least part of their down payment came from a gift or loan from family or friends," Zillow said.

Another report by CBS shows how the higher income earners, who are the top 30% are also failing to comfortably afford a home at any age in cities like Los Angeles, New York, Boston, Denver, San Diego, Seattle, and San Diego. This is a completely different picture from 2001 when the top 30% of income earners could easily afford homes in some of these cities. 

Even in a more affordable market, it's likely that these earners will only be able to afford a home after 40.

"We expected that it might take longer for middle-income earners and new job-market entrants, but we were surprised to see how far up the income spectrum you had to go based on how quickly homes have appreciated," Ryan Frazier, co-founder and CEO of Arrived, told CBS MoneyWatch.

One way to check if you can afford the home is by seeing if you are comfortable paying a 30% down payment without spending more than 30% of your pre-tax income.

Even with the steep prices, there are certain markets that you can look into with hopes of finding a dream home well within your budget. For example, there are seven housing markets across the nation including, New York, San Francisco, Seattle, and more, where the household income has to be more than $200,000 to be able to afford a home. On the other hand, there are cities like Pittsburgh, and Cleveland, where the chances of getting a home without breaking the band are a bit higher.

A lot needs to change to make homes affordable for average Americans again. Affordability in America in general has taken a huge hit and the home price hike has contributed majorly to that. Of course, higher incomes will help to bring up the median family income but it's not enough. Also, downward pressure on home prices by the Feds could help. But, the biggest issue remains the fact that there are still very few homes up for sale and the laws of supply and demand are off-balance. 

"The market is in a deep, deep freeze," Zandi said. "The only way to thaw it out is a combination of lower prices, higher incomes, and lower rates." Moody’s Analytics chief economist Mark Zandi told CNBC.