Owning a Home in America Now Requires a Six-Figure Salary

San Jose, California, was the least affordable US metro region this year, according to a new report from Oxford Economics. Other California cities, including San Francisco, Los Angeles and San Diego, were also among the least affordable metros.

The American dream of owning a home has become an increasingly expensive aspiration. According to a recent report from Oxford Economics, the average household now needs an annual income of $107,700 to afford a new single-family home. This figure, which accounts for mortgage payments, property taxes, and insurance costs, is nearly twice the $56,800 income required just four years ago in 2019.

Home Affordability is Slipping Away

The numbers tell a stark story: only 36% of U.S. households can afford to buy a new home today, a significant drop from 59% in the same quarter of 2019. This rapid shift highlights just how much the housing market has transformed in a few short years, fueled by several economic and social factors.

What Happened to the Housing Market?

The pandemic in 2020 disrupted almost every aspect of the economy, and the housing market was no exception. Remote work, combined with a growing desire for more spacious living environments, led many Americans to move. This surge in demand collided with a long-standing housing shortage, sparking fierce competition and driving prices sky-high across the country.

While home prices have increased in every U.S. city, affordability varies widely based on location:

Least Affordable Metro Areas:
- San Jose, CA: Median home price of $1.89 million; income needed: $461,000.
- Other costly cities include San Francisco, Los Angeles, and San Diego.
Most Affordable Metro Areas:
- Cities like Cleveland, Louisville, Detroit, and St. Louis offer some relief, with required incomes ranging from $64,600 to $75,300.

Rising Mortgage Rates: The Biggest Culprit

Skyrocketing mortgage rates have played a critical role in the housing affordability crisis. Rates have nearly doubled, rising from 3.7% in Q3 2019 to a peak of 7.3% in late 2023. While rates have since dipped slightly—averaging 6.79% for a 30-year fixed mortgage—they remain far higher than the historically low levels seen from 2008 to 2022.

This surge in borrowing costs, driven by the Federal Reserve’s aggressive interest rate hikes to curb inflation, has made homeownership even more challenging. Barbara Denham, a senior economist at Oxford Economics, summed it up: “While house prices increased in every metro, the rise in mortgage rates eroded affordability more significantly.”

The Geography of Affordability

Location remains a critical factor in determining whether homeownership is attainable. For example, metro areas in the Midwest, like Cleveland and St. Louis, still offer relatively affordable options. In contrast, cities in Florida, Arizona, and South Carolina—popular destinations for retirees—have seen dramatic declines in affordability over the past five years.

Defining Affordability

Oxford Economics evaluates affordability based on whether housing costs exceed 28% of a household’s income. With rising home prices and higher mortgage rates, more Americans are finding it increasingly difficult to stay within this threshold, forcing many to put their homeownership dreams on hold.

The Bottom Line

The housing market has become a battleground for affordability. For many Americans, owning a home now feels more like a six-figure hurdle than an attainable goal. As mortgage rates and housing costs continue to challenge budgets, buyers may need to explore new strategies, like moving to more affordable regions, to make homeownership a reality.

Are we witnessing a permanent shift in the American housing landscape? Only time will tell.