New mortgage payment data from Redfin revealed that this year’s cocktail of persistently high home prices and steadily rising mortgage rates has substantially amplified an already challenging affordability crisis.
The income required to afford the monthly mortgage payment on the typical home in the U.S. ballooned to $107,281 in October, the national real estate brokerage reported. That’s a staggering jump of 45.6% from $73,668 one year earlier. During the same period, the average hourly wage nationwide grew by roughly 5% — and that’s not even taking the impacts of inflation into account.
“High rates are making buyers rethink their priorities as many of them can no longer afford the home they want in the location they want,” said Chelsea Traylor, a Redfin agent in Washington D.C. “If you had a $900,000 budget a few months ago, rising rates mean it’s now around $700,000, and sellers aren’t dropping their prices enough to make up for the change.”
Buyers determined to find homes, Traylor noted, are making concessions in their searches, including looking further away from cities in more affordable areas. Others are waiting for prices or rates to drop before making their move, although Traylor said that, at least from a wealth-building standpoint, there may be some merit in buying in such a difficult environment.
“I’m encouraging buyers to think long term,” she said. “Prices are unlikely to fall drastically in the long run, so buying a home now — if you can afford the monthly payment — will still help you build wealth over time, especially if you plan to live in it for several years. Even though rates are high, another advantage of buying now is the lack of competition and opportunity to negotiate with sellers.”
While the significant jump in mortgage payments has been geographically broad-based, some areas have seen much larger gains than others. Prospective buyers in the Sun Belt have seen their potential payments swell the most. Of the 20 metros where the income needed to afford mortgage payments has risen the most during the past year, 16 are in the region.
In the North Port-Bradenton-Sarasota area on Florida’s Gulf Coast, for example, buyers needed an income of $131,535 in October to afford a typical monthly mortgage payment. That’s up 73.9% year over year, the largest percentage increase of any major U.S. metro. Miami, on the other side of the state, required homebuyers to earn $128,892 to afford a typical monthly mortgage payment, up 63.7% year over year.
Among the 93 large metros included in the analysis, Lake County, Illinois, had the smallest growth in income necessary to afford a median-priced home, although that figure still jumped by 33.5% annually.