Nearly 40% of Homeowners Couldn’t Afford Their Home If Bought Today, Redfin Finds

Nearly two in five homeowners don’t believe they could afford to buy their own home if they were purchasing it today, according to a new report from Redfin, Seattle.  

Redfin surveyed roughly 3,000 U.S. residents in February for the report.

Almost three out of five (59%) homeowners who answered this question have lived in their home for at least 10 years, and another 21% have lived in their home for at least five years. As such, the majority of respondents have seen housing prices in their neighborhood skyrocket since they purchased their home: The median U.S. home-sale price has doubled in the last 10 years and has shot up nearly 50% in the last five years alone.

“Rising home prices are a double-edged sword. On the one hand, Americans who already own homes benefit from rising values, and they can consider themselves lucky they broke into the housing market while they could still afford it,” Redfin Senior Economist Elijah de la Campa said. “On the other hand, price appreciation makes the prospect of buying a new home daunting or even impossible for many people who want to move.”

de la Campa noted prices have risen enough that a similar home and location would be much pricier than a home someone already owns–even accounting for inflation. “Add elevated mortgage rates to the equation, and moving up to a bigger, better home is even more costly and perhaps out of reach.”

The report noted several contributing factors when it comes to the soaring home prices over the last decade. Already-high home prices skyrocketed during the pandemic, when ultra-low mortgage rates and remote work motivated many Americans to move and buy homes. Even prior to the pandemic buying boom, home prices were increasing due to the prolonged shortage in supply, a strong labor market and growing population pushing up demand.

Rising mortgage rates are another reason many homeowners say they couldn’t afford their own home if they were to buy today. The typical homebuyer purchasing today’s median-priced home for about $420,000 has a record-high $2,864 monthly housing payment with a 7.1% mortgage rate. If they were to purchase a home for the same price with a 4% mortgage rate (which was common in 2019), their monthly payment would be $2,210, roughly $650 less per month.

This situation is especially dire for first-time homebuyers, who haven’t built up equity from the sale of a previous home. Nearly 40% of U.S. renters don’t believe they’ll ever own a home, up from 27% last year. Of the Gen Z and Millennial population who do expect to buy their first home soon, more than one-third (36%) expect to use a cash gift from family to help with their down payment.

Baby Boomers are least likely to be able to afford to buy their own home today

Broken down by generation, Baby Boomers are the least likely to be able to afford their current home if they were to buy it today. Nearly half (or 45%) of Baby Boomers said they couldn’t afford a similar home in their neighborhood now, compared to 39% of Gen Xers and 24% of Gen Zers and Millennials. This should come as no surprise, since Baby Boomers are more likely to have bought their home many years ago for a much lower price. That dynamic contributes to the shortage of homes for sale: Empty-nest Baby Boomers own twice as many large homes nationwide as Millennials with kids, largely because older Americans, with no financial incentive to sell, are hanging onto their homes.

Not surprisingly, lower-income homeowners are least likely to be able to afford their own home today. More than half (or 51%) of respondents earning under $50,000 annually wouldn’t be able to afford their home, compared to 34% of people earning $50,000-$100,000 and 21% of people earning more than $100,000.