According to Redfin News, the income required to afford a typical home across the United States is holding steady near record levels. Right now, an American household needs to earn roughly $109,796 annually to comfortably buy the median-priced home, which is down just slightly from an all-time high reached a year ago. This affordability measure is based on the idea that housing shouldn't consume more than 30 percent of a household's monthly income, and it factors in current mortgage rates, property taxes, and assumes a buyer is putting down 15 percent.
What's interesting about where we are now is that affordability has essentially plateaued. The income needed to purchase a home has been dropping modestly since late last year, but these improvements have been minimal. The real story underneath the numbers is that monthly housing costs and household incomes are both growing at roughly similar rates, so they're kind of canceling each other out. That said, there's still a meaningful gap between what typical American households actually earn and what they need to buy a home, though that gap is gradually narrowing compared to a year or two ago.
The picture looks a bit better for people shopping at the entry level. Redfin found that you need to earn about $70,693 to afford a typical starter home, which represents a small improvement from twelve months prior. Additionally, the share of homes actually listed at affordable prices has increased, with just over a third of current listings qualifying as affordable to median-income earners, up from 30.5 percent a year earlier.
When looking at major metropolitan areas, the story varies quite a bit. Some expensive West Coast markets are actually seeing modest improvements, with Seattle posting the largest decline in income requirements year over year. San Jose is also becoming a bit more manageable, though buyers there still need to earn significantly more than local median incomes. However, San Francisco is moving in the opposite direction, with income requirements rising 6.2 percent and now representing the highest in the nation at over $453,000. According to Redfin's analysis, only three major metro areas have median household incomes that actually exceed what's needed to afford a typical home: St. Louis, Indianapolis, and Pittsburgh.
What I'm seeing locally here in the Bay Area and across the East Bay is that while we're not experiencing the dramatic affordability improvements some markets are getting, we're also not getting hit with the worst increases. The reality for our buyers remains challenging, but the fact that incomes are growing faster than housing costs gives me some measured optimism. For sellers, these stabilizing conditions mean we're in a more balanced market than we've had in recent years, which can actually work in your favor if you price strategically.
