Housing Market Meltdown: Collapse of Affordability Leaves Homebuyers in Despair

Housing ‘affordability has just totally collapsed,’ economist says

Purchasing a home in the United States has become increasingly challenging as housing costs rise at a faster pace than incomes.

According to Redfin, a real estate brokerage site, potential homebuyers need to earn an annual salary of $113,520 to afford a typical home, while the median household income is only $84,072, representing a 35% deficit.

This situation has been developing since February 2021, when household incomes exceeded the cost of the median home.

The widening affordability gap is primarily driven by high mortgage rates and home prices.

Mortgage rates surged in October 2023, reaching 8%, and remained at elevated levels for an extended period.

Combined with rising home prices, which peaked in February 2024 at a median sale price of $412,778, it became increasingly difficult for potential buyers to qualify for mortgages.

The Department of Housing and Urban Development (HUD) considers housing costs that are 30% or less of household income to be affordable.

However, in February, the average household fell short by $29,448 in meeting this threshold.

As a result, potential buyers are being forced to the sidelines, delaying their home purchases or exploring more affordable options.

One alternative for price-sensitive buyers is starter homes, which Redfin defines as homes in the bottom third of housing prices.

To afford a starter home, potential buyers need to make approximately $76,000 annually.

However, starter homes have become scarce as home builders have shifted away from constructing entry-level properties.

While lower mortgage rates and increased inventory may provide some relief in the future, experts believe that affordability challenges will persist.

The outlook remains uncertain, and potential homebuyers are advised to proceed cautiously.