Why homebuyers need to earn more to afford a home in 2024

Factors beyond high mortgage rates are affecting housing affordability for many Americans, according to experts.

Almost four years ago, a household earning $59,000 annually could afford a new mortgage without spending more than 30% of their monthly income and with a 10% down payment, according to a recent report by Zillow Group.

That is no longer the case today.

While the typical household in 2024 makes about $81,000 a year, up from $66,000 in 2020, wages have not kept up with housing costs.

“Since January of 2020, the typical mortgage payment on the typical home in the U.S. has nearly doubled,” said Orphe Divounguy, a senior economist at Zillow.

Nowadays, potential homebuyers need to make about $106,500 a year in order to afford the typical home today, an 80% increase from January 2020, according to Zillow.

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The connection between housing costs and wages has been gradually separating over the years, according to C. Kirabo Jackson, an economist and member of the White House Council of Economic Advisers.

“Around the mid-90s, you start to see housing prices sort of separate from median wages in a way that kind of made housing less and less affordable for people who are in the market,” Jackson said.

Tight supply is another reason behind unaffordability. Fewer homes available on the market for would-be buyers keeps real estate prices elevated and, in some local markets, the shortage makes prices climb higher.

The number of new housing units built throughout the years has been declining, and the low supply is rooted in restrictive land-use and zoning regulations, according to experts.

“If we have a supply problem, we really need to have a supply solution,” Divounguy said.

Land-use and building regulations across the country make it difficult in some markets to build new homes, Divounguy said.

And the most important way to improve affordability is to build more housing in the U.S, he said.

To increase housing supply, local policy makers would need to lower the barriers for builders by easing land-use and zoning regulations, which determine factors like the maximum height of a building or the minimum size of a lot, Jackson said.

For example: Some local areas may say you can’t construct buildings more than three stories high in a particular area, which means high-rise buildings that could house about 100 people are out of the question.

“Instead, you have to have a house that maybe has five people,” Jackson said. “The more supply you have helps keep prices down. So the more housing that you make…