The housing crisis persists, but there are indications of progress.

Americans need to earn more than $115,000 to afford what's considered a typical home in today's housing market. The good news? That price point is down from last year. The data, from real estate firm Redfin, found that falling mortgage interest rates have lowered the annual income needed to buy a typical home by 1.4% compared to last year. In 2023, Americans needed more than $120,000 to purchase a typical house with a 15% down payment that takes up less than 30% of monthly earnings. Redfin reports that using those metrics, this year's price point of $115,454 marks the first time homes have become more affordable since 2020. "Housing affordability is improving for the first time in four years, so if you want to buy a home and can afford to, now could be a good time because it's unlikely to become markedly cheaper in the near future," said Redfin senior economist Elijah de la Campa, in a statement with the findings. "Many house hunters are waiting to see if mortgage rates fall a lot further, but that probably won't happen anytime soon." The Redfin data comes on the heels of the Federal Reserve last week lowering the target range for the federal funds rate by half a percentage point. While the degree of the reduction surprised some observers who were expecting a 25 basis point cut, a cut to some degree was largely expected - and the impact of that cut had largely been priced into existing mortgage rates already, Redfin notes.

Additionally, home prices continue to go up, erasing any payment gains buyers might be able to make by waiting longer, de la Campa said. The $115,454 price point also remains substantially more than the typical American household earns: $83,853 a year, according to Redfin. That means a household would have to spend 41.3% of its earnings on housing to buy a median home. The last time the typical household earned enough to be able to afford a median home was in February 2021, when the median household income was $69,021, according to Redfin, 5.7% more than the $65,308 needed to afford a typical home.

Which cities are more affordable?

Using Redfin's metrics, some cities grade out as being more affordable than others. Residents of St. Louis require $74,184 to afford a median home in that market, while the median household income there is $85,635. The share of income a typical household would need to spend to buy a median-priced home came in at 26%. Residents of Detroit, Pittsburgh, Cleveland and Cincinnati also require less than 30% of income to afford a typical home in those cities, according to Redfin. In Los Angeles, meanwhile, the typical household income was $93,072, but the income needed to afford a median home was $236,654 - which translates to more than 76% of household income. Elsewhere in California, Anaheim, San Francisco and San Jose all require a median household income to spend more than 70% of income on housing payments. Other indicators also show that while mortgage payments might have become easier with declining interest rates, housing costs are still climbing. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index found home prices grew 5% in July over the same month last year. July marks the 14th straight month the index has hit a new high.

An analysis of average monthly mortgage payments by brokerage Zoocasa from 2018 to 2023 across 50 cities found that the average monthly payment grew faster than median income in all of those measured markets. Research from the Federal Reserve puts the median sale price of a house sold in the United States during the second quarter at $412,300 - though that price is down from $418,500 during the second quarter of 2023 and down from a peak of $442,600 in the fourth quarter of 2022. Those high prices and high mortgage rates also have cooled the vacation-home market in the past year, according to separate data from Redfin. The firm found mortgage-rate locks for second homes - often vacation or investment homes for people who already own a primary residence - dropped 13% in August. That's more than twice the drop observed among primary homes and the lowest level since March 2016. All told, many Americans are pessimistic about their ability to purchase a home, according to a survey by new-construction marketplace NewHomesMate. Fifty-seven percent of respondents said they doubted they could ever afford their "dream" home, and 58% of respondents said they would be open to downsizing to afford a home, while 31% would be willing to extend their commute to work to make their budgets go further.


This article originally appeared in the Austin Business Journal.