August 2024: Home Prices Are Outpacing Incomes—Fast

Across the country, home prices are climbing far faster than wages, creating affordability challenges that continue to intensify.

A new analysis from brokerage Zoocasa examined average monthly mortgage payments from 2018 to 2023 in 50 U.S. cities and found that every market saw payments rise more quickly than median incomes.

The gap is wide in major metros. In Boston, mortgage payments jumped 27.5%, while income rose just 22.4%. Washington, D.C. saw an even sharper divide—35.8% growth in payments versus 19.1% income growth.

But those cities weren’t the worst.

In Tucson, Arizona, income climbed 27%, but average monthly mortgage payments soared 126.5%. Miami saw a similar trend: 117.2% increase in mortgage costs compared to a 30% gain in income. Other cities like Spokane, Washington, and Buffalo, New York, also experienced a doubling of mortgage payments with wage growth lagging below 30%.

What’s Driving the Spike?

The primary factor is no mystery. According to the Zoocasa report, interest rates skyrocketed over this period. In May 2018, the average 30-year mortgage rate sat at 4.55%. By 2022 and 2023, it had climbed above 7%, and only recently dipped back into the 6% range.

Meanwhile, home prices are still rising. According to the National Association of Realtors, prices rose in 89% of metro areas in Q2 2024. The national median reached $422,100, up 4.9% year-over-year.

With a 20% down payment, the average monthly mortgage payment on a typical single-family home hit $2,262—a 10.3% jump from last year. Families are now spending 26.5% of their income on mortgage payments, up from 24.2% the prior quarter.

“Good News” Depends on Who You Are

“This is great news for existing homeowners building equity,” said NAR Chief Economist Lawrence Yun, “But for new buyers, it’s a challenge. The income needed to qualify for a mortgage has nearly doubled in just a few years.”

Where Prices Are Rising Fastest

Some areas saw double-digit home price growth in Q2 2024. Glens Falls, New York, led the pack with a 19.8% jump, followed by El Paso, Texas (19.2%) and Anaheim-Santa Ana-Irvine, California (15.0%).

Not surprisingly, seven of the top 10 most expensive markets are in California, with San Jose breaking the $2 million median price mark after an 11.6% increase.

To buy a home with just a 10% down payment, families now need to earn over $100,000 a year in nearly half (48%) of U.S. markets—up from 40.7% last quarter. Just 2.7% of markets are still affordable for families making under $50,000, down from 4.5%.

Will Relief Come Soon?

According to Yun, affordability may start to improve. Mortgage rates have eased slightly, and more homes are coming onto the market. That could bring the required income to purchase down in the months ahead.

Data from the Federal Reserve shows the median sale price for U.S. homes fell from a peak of $442,600 in Q4 2022 to $412,300 in Q2 2024—a sign that prices might be stabilizing.

Still, many Americans remain pessimistic about their chances of homeownership. A NewHomesMate survey found that 57% of respondents don’t believe they’ll ever afford their “dream” home. In fact, 58% are open to downsizing, and 31% would consider extending their commute to find something within reach.

The same survey showed the average household needs to earn $115,000 to afford a typical home—$40,000 more than what most households currently bring in.

Mortgage Rates May Dip—But Not Dramatically

There is some potential relief on the horizon. If the Federal Reserve lowers interest rates in the coming months, mortgage rates could follow. But experts warn not to expect pandemic-era lows.

“We’re not going back to 3% mortgages,” said Marty Green, principal at law firm Polunsky Beitel Green. “Rates in the 4–5% range are more realistic over the next year or so.”

That shift could translate into hundreds in monthly savings for buyers. Still, mortgage rates remain around 7%, and even with Fed cuts, borrowing costs may remain elevated due to larger economic pressures—like the federal deficit.