US homebuyers need $109,796 income as affordability gap narrows

The income needed to buy a typical US home stabilized at $109,796 in June, down 0.5 percent from last year's record, while median household income of $87,599 leaves a $22,200 affordability gap, according to Redfin.

"The earnings needed to buy a house have stabilized after several years of deterioration, but that doesn't mean homes are affordable to the average American," said Yingqi Xu, senior economist at Redfin.

The stabilization comes as household incomes rose 4 percent to $87,599 while median home sale prices increased 2.2 percent and mortgage rates eased slightly but remained in the mid-6 percent range. The typical homebuyer would need to spend 37.6 percent of income on a median-priced home, down from 39.3 percent a year ago. Redfin found 34.2 percent of listings were affordable for median-income households, up from 30.5 percent but well below pre-2022 levels when more than half of listings were within reach.

The $22,200 gap represents a modest improvement from the $26,100 shortfall a year ago and $28,900 two years ago, but it masks a deeper structural problem. The median new home took 3.4 years of median household income in 1982, but 5.0 years by 2024, according to data cited in a recent Wall Street Journal letter. Housing, education, and healthcare — the three purchases that define middle-class standing — have all outpaced broader inflation because supply constraints and subsidized demand pushed prices higher faster than wages could keep up.

The affordability squeeze exists even as American households have grown wealthier in aggregate. Real median personal income rose from $26,750 in 1982 to $45,140 in 2024 in constant dollars, and the Congressional Budget Office found real wealth in the median American family up 131 percent between 1989 and 2022. But those gains skewed upward: families in the top 10 percent went from holding 56 percent of American wealth to 60 percent, while the share held by the 51st through 90th percentiles fell from 37 percent to 33 percent. Meanwhile, what got cheaper diverged sharply from what got dearer — clothing costs about a third more than in the early 1980s against a near-tripling of prices overall, while televisions and phone-call prices collapsed.

Regional Divergence Widens

Affordability improved in 24 of the 46 major metro areas Redfin analyzed. Seattle saw the largest improvement, with the income needed to afford the typical home falling 7.4 percent from a year ago as home prices declined. San Jose and Portland followed with drops of 6.5 percent and 4.5 percent, respectively. Despite those gains, West Coast markets remain the least affordable. San Francisco buyers would need $453,205 in annual income to afford the typical home, the highest of any major metro. Only three metros — St. Louis, Indianapolis, and Pittsburgh — had median household incomes that exceeded the income required to afford the typical local home.

Xu said the market has become "a bit more manageable" for buyers because much of the country is now a buyer's market, giving shoppers more options and stronger negotiating power. Even so, many prospective first-time buyers remain on the sidelines because the typical household still earns far less than what's needed to be financially comfortable.

Redfin economists expect affordability could improve slightly by year-end, but they warned it could worsen if interest rates rise more than expected, oil prices increase further, or inflation accelerates. The trajectory matters beyond the housing market: when the median household cannot afford the median home, it constrains household formation, dampens consumer spending on furnishings and renovations, and slows the wealth-building channel that homeownership provides. For the Federal Reserve, persistent housing cost pressures complicate the inflation picture even as shelter costs begin to moderate.

This article is for informational purposes only and does not constitute investment advice.