US mortgage affordability gap: household income vs. income needed?

The affordability gap in the U.S. housing market is a significant issue, with rising housing prices outpacing wage growth, making homeownership increasingly difficult. This crisis impacts the social and economic well-being of communities, forcing families to choose between basic needs and housing stability. Exploring the factors behind this gap and potential solutions is crucial to address the growing divide.

Table of contents

• Median HHI vs. Income to afford home
• Home costs as a Percentage of Median Income
• Homeownership Costs

Median household income vs. income needed to afford a home

The median household income in the US is $85,255 as of August 2024. When comparing the median household income in the US to the qualified income of $119,870 needed to purchase a home — and there is a gap in income of $34,615. The median income in the US would need to increase by 40.60% for the median household to afford a home.

The income required to afford a home is based on the guidance that annual homeownership costs should not exceed 30 percent of annual income. Costs associated with homeownership include property taxes, private mortgage insurance, property insurance in addition to the principal and interest charged on the value of the mortgage.

The average down payment on the median home price is expected to be 10% — which is inline with the average loan-to-value on mortgages originated between 2000 and 2019.

Home costs as a percentage of median income

When the share of median income as a percentage of home costs exceeds 30% a home is considered to be unaffordable. In April 2021, the cost of homeownership in the US exceeded 30% when comparing the meidan income to homeownership costs. Since April 2021 this percentage has stayed well above 30% — and currently sits at 42%.

Homeownership costs breakdown

A monthly cost breakdown for August 2024 shows that total home costs equate to $2,997. For only 30% of income to be spent on homeownership costs, a household would need to earn $9,990/month or $119,880 a year before taxes.

This $2,997 as of August 2024 is comprised of $414 in property tax, $164 of private mortgage insurance, $186 of property insurance and lastly $2,233 which relates to the principal and interest charged on a mortgage to come up with median monthly payments related to homeownership costs of $2,997.