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One of the few good things to happen during the pandemic was sub-3% mortgage rates<\/a>, which allowed younger and lower-income buyers to break into the housing market. But that abruptly changed in 2022 and 2023 when mortgage rates and home prices skyrocketed\u2014peaking at 8% in October 2023<\/a>.<\/p>\n These factors led to an extremely strained market in which many homeowners clung to their current properties<\/a> in fear of higher mortgage rates and fewer new buyers could afford to buy a home. Indeed, housing affordability has gotten so bad that prospective buyers need to make about $50,000 more now than pre-pandemic in order to \u201ccomfortably\u201d afford a home, according to a Zillow report<\/a> released Thursday. And affording a home goes beyond monthly mortgage payments, experts agree.<\/p>\n \u201cComfortably affording a home in today\u2019s market means having the financial capacity to cover mortgage payments, property taxes, insurance, and other associated costs without significant financial strain,\u201d Stacy Brown, director of technical training at Real Property Management<\/a>, tells Fortune<\/em>. Considering \u201cthe fact that the boomer generation is staying in their homes rather than moving to retirement communities, as well as those who moved to the suburbs during the pandemic [choosing to work] remotely\u2014comfortable home ownership is out of reach for many.\u201d<\/p>\n Now, buyers need to make on average $106,000 to afford a home, which is 80% more than January 2020, Zillow<\/a> says. Monthly mortgage payments on a \u201ctypical home,\u201d which Zillow defines as costing $343,000, have nearly doubled in that time frame to $2,188, assuming a 10% down payment. And while mortgage rates and home prices are the main culprits behind today\u2019s housing affordability challenges, there are other factors that make buying a home more costly.<\/p>\n Since January 2020, home values have jumped nearly 43%, according to Zillow. In 2023 alone, home prices increased nearly 6%, according to the Case-Shiller National Home Price Index<\/a> (a real estate industry standard measure). Meanwhile, mortgage rates ended January 2020 at about 3.5%, half of today\u2019s 30-year fixed mortgage rate of 7.1%, according to Mortgage News Daily<\/a>.<\/p>\n While looking at mortgage rates and home prices alone is dire enough, wages also haven\u2019t kept up with the demands of a home purchase. A household earning a $59,000 salary in 2020 could comfortably afford the monthly mortgage, meaning they wouldn\u2019t spend more than 30% of their income with a 10% down payment, according to Zillow. That was below the U.S. median income at the time, which clocked in at about $66,000, \u201cmeaning more than half of American households had the financial means to afford homeownership,\u201d Anushna Prakash, a Zillow economic analyst, wrote in the report.<\/p>\n \u201cA significant portion of Americans struggle to afford homeownership, especially in younger age groups and individuals with lower incomes,\u201d Jaclyn Anastasakos, a real estate agent with Luxe Properties<\/a> in Miami, tells Fortune<\/em>. \u201cThe gap between income levels and housing costs has widened, making it harder for many to achieve the dream of owning a home.\u201d<\/p>\n Now, the U.S. median income is $81,000, according to Zillow, but prospective homeowners need more than $106,000 to \u201ccomfortably\u201d purchase a home. That means that wages haven\u2019t kept pace with home prices, mortgage rates, and other costs associated with buying a house in the U.S. Filippo Incorvaia, owner and broker at Miami-based FI Real Estate<\/a>, says housing affordability \u201cfeels the most intense\u201d since he started his career 20 years ago.<\/p>\n \u201cSix figure incomes are essential to affording a home today,\u201d Incorvaia tells Fortune. <\/em>\u201cThis usually means both partners are typically working and contributing, and you could still be strained financially. Meanwhile, purchasing a property alone is more challenging than ever.\u201d<\/p>\n And certain housing markets\u2014particularly large metropolitan areas\u2014that have high demand and limited supply \u201cmay require an even higher income to afford a home,\u201d Brown says.\u00a0<\/p>\n \u201cEven in areas that have typically been affordable, those neighborhoods considered affluent or renovated continue to command higher home prices,\u201d Brown says. \u201cCouple that with major employers moving operations to states with more favorable taxes or other incentives, [and] many areas that were considered affordable are quickly becoming out of reach for many.\u201d<\/p>\n Incorvaia finds that many people in their 20s are \u201cdelaying the dream of homeownership entirely\u201d because housing affordability has gotten so strained. The majority of his first-time homebuyers are professionals in their 30s and 40s who have been focused on their career while renting and saving for a down payment.\u00a0<\/p>\n With fewer individuals\u2014and even couples\u2014able to purchase a home, many Gen Zers and millennials have turned to \u201chouse hacking,\u201d or co-buying with friends or family. They then rent out all or part of these properties in order to generate extra income. Zillow reports that 21% of last year\u2019s buyers<\/a> did this. While this might seem like a good idea in the interim as mortgage payments stay high, house hacking has its downsides.<\/p>\n \u201cHouse hacking is a real phenomenon,\u201d Incorvaia says. \u201cFriends and multiple couples choose to purchase a property together to reduce costs, but this also reduces equity and may not be the most viable long term solution.\u201d<\/p>\n<\/div>\n\nMortgage rates and home prices don\u2019t tell the whole story<\/h2>\n
House hacking<\/h2>\n
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