Zillow Finds Buyers Need $17,000 Raise to Afford a Home

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Five years ago, a median-income household could afford a typical U.S. home. Today, they’re more than $17,000 short, even if they have $73,000 saved for a down payment, a new Zillow analysis found.

While the housing market is friendlier to buyers this spring than in recent months, with more homes for sale and a record number of sellers cutting their list prices, significant home value growth and higher mortgage rates in recent years have reset the financial bar for homeownership. Affordability pressures have helped chill buyer demand, while amping up interest in single-family rentals.

“Affordability remains a steep hill to climb, especially for first-time buyers,” said Kara Ng, senior economist at Zillow. “While the financial bar has gotten higher, we’re also in the middle of the most buyer-friendly spring since before the pandemic for those who can make the finances work.”

To comfortably afford a typical U.S. home worth $367,969, a buyer today needs to earn nearly $100,000 a year, assuming they have $73,594 saved for a 20% down payment. [To be considered affordable, a monthly mortgage payment must account for no more than 30% of household income.] That means a household earning the median income would need a $17,670 raise.

There are 11 major markets where the median income is enough to afford the typical mortgage payment, down from 39 such markets five years ago. These are generally midsize markets in the Midwest and Northeast. Median earners in Cleveland have the most room to spare, making $11,588 more than what’s needed to afford the typical home, followed by Pittsburgh ($11,244), St. Louis ($4,897) and Cincinnati ($4,396).

The report noted that as affordability headwinds have stiffened for would-be first-time buyers, renters are aging and demand for single-family rentals has increased. These homes now rent for 41% more than five years ago, compared to 30% growth for traditional multifamily apartment units.

To make the finances work, buyers are looking everywhere to come up with a down payment. More than half of buyers tap at least two sources. The most common sources of down payment funding are savings (72% of buyers), the sale of a previous home (46%) and a gift or loan from family or friends (38%), Zillow said.