Income Instability: The Hidden Barrier to Buying (sponsored by Truework)

I started Truework because I believed in something simple: if we could make income and employment data more accurate, more accessible, and more transparent, we could expand homeownership to millions of people.

Over the last few years, that belief has collided with a housing market that feels increasingly unforgiving. The American Dream of homeownership hasn’t disappeared, but it has become more selective. Who gets in the door is no longer determined only by how much they earn. It’s now a function of how stable that income is, what kind of work they do, and where they live.

As a founder, I’m used to thinking in stories: the couple trying to buy their first home, the nurse relocating for a better job, the engineer bidding on a starter condo. But the most sobering stories are in the data itself. In our latest affordability analysis, one thing is painfully clear: the market isn’t just expensive; it’s sorting people.

The rate shock that rewired the market

If you ask most people why housing feels unaffordable, they’ll point to home prices. But our data suggests that over this recent cycle, interest rates did more of the damage than prices.

Between early 2022 and late 2023, the average 30-year fixed mortgage rate nearly doubled—from around 3.8% to over 7%. That single shift pushed the typical borrower’s payment-to-income ratio from about 23% of their income to nearly 34% at the peak. On paper, that’s just a number. In reality, it’s the difference between stretching and snapping.

Interestingly, verified incomes among mortgage applicants actually rose faster than home values over this period. If rates had stayed at early-2022 levels, our model suggests affordability would have improved by roughly 5.5 percentage points, despite higher home prices. Instead, that progress was completely swamped by the cost of borrowing.

By 2025, as rates stabilized and edged down slightly, conditions improved, but not back to where we started. Today, with rates hovering in the mid-6% range, affordability remains structurally worse than in early 2022. And critically, the people still in the market don’t look like the people who left.

A buyer pool that’s richer, younger, and less stable

One of the underappreciated dynamics in this cycle is who is still applying for a mortgage. Our data shows that the average income of applicants rose from roughly $72,000 in early 2022 to nearly $82,000 by 2025. That’s not just wage growth; it’s selection.

Incomes in our dataset are growing faster than national wage benchmarks, which tells us something uncomfortable: lower-income households are not suddenly getting big raises. They are increasingly not applying.

But another shift is happening under the surface. The typical mortgage applicant is not just higher income; they are also younger and more concentrated in knowledge-based work, and more likely to have volatile income.

Millennials, now in their prime home-buying years, account for about 52% of mortgage verification volume in our data. Gen Z, however, is the fastest-growing segment, expanding from a few hundred applicants in early 2022 to more than 4,500 by mid-2025—around 15% of total volume.

At the same time, we see a growing share of applicants in management, technology, and finance roles. On paper, those jobs are well-compensated. In practice, they are increasingly tied to variable components: bonuses, equity, commissions, performance-based pay.

The result: a paradoxical borrower profile with higher income, but less predictably earned.

Income instability: the quiet deal-breaker

Most public debates about affordability focus on price and pay. Far fewer grapple with stability. Yet when we look at verified earnings over time, month by month, stability jumps out as one of the most important and least understood forces in the system.

From early 2022 to mid-2025, the share of mortgage applicants experiencing “downside income instability” in our data rose from 50% to 62%. Not only are more people seeing their income drop from one month to the next, but the size of those drops has nearly tripled. This is happening at the same time that gig work, short-term W-2s, and 1099-based roles are spreading. ADP estimates that people with a short-term W-2 or 1099 accounted for 27% of all jobs held in 2024, and a recent survey suggests nearly 4 in 10 Americans now have a side hustle.

Why does this matter? Because underwriting still largely assumes a world of steady paychecks.

Imagine a borrower whose payment-to-income (PTI) ratio is 0.34, comfortably below a typical threshold of 0.36. If that borrower’s income drops modestly for a month, as happens frequently in variable-pay roles, that same loan might suddenly look unaffordable on paper. Nothing about the house changed. Nothing about the long-term earning potential changed. But the timing and shape of income flows did.

When we control for income level, geography, occupation, and time, income instability remains an independent, negative factor. In our modeling, borrowers with unstable income are about 28% less likely to meet affordability thresholds—even after accounting for their income.

What this means for the future of lending

The old model of underwriting was built for a labor market that is slowly disappearing: one employer, one paycheck, one predictable W-2. The new reality looks more like a mosaic of income sources—base pay, tips, bonuses, commissions, equity, part-time gigs, and side hustles—stacked together and fluctuating month to month.

If we insist on forcing that mosaic into a framework designed for a single static paycheck, we will continue to lock out exactly the people the modern economy is producing: younger workers, service workers, gig workers, and anyone whose earnings don’t fit neatly into last year’s template.

Lenders need to be able to see not only how much someone earns, but how they earn it and how that income behaves over time. They need tools that distinguish between temporary noise and real distress, between an inconsistent but strong earning profile and a truly unsustainable one.

Our latest affordability report ends on a sobering note. Interest rates remain elevated. Income instability is rising, from 67% of applicants in December to 71% by early April. Even as borrower incomes tick up and payment-to-income ratios ease slightly, the system is still pushing many would-be homeowners to the sidelines.

But there is also an opportunity here—if we’re willing to rethink how we measure risk and who we design for.


(Sponsored content includes material submitted independently of the Mortgage Bankers Association and MBA NewsLink and does not connote an MBA endorsement of a specific company, product or service. For more information about sponsored content opportunities, contact Bill Farmakis at bill@jlfarmakis.com or 203/834-8832.)