The annual income needed to buy a home fell for the first time since 2020 as mortgage rates fell to the first decrease in three years.
Home buyers now need to earn $115,454 a year to buy a typical home, down 1.4 percent from the previous year. New reports According to real estate company Redfin.
That's the first year-over-year decline since June 2020, when the Federal Reserve slashed interest rates to near zero as the pandemic ravaged the economy and mortgage rates hit record lows.
But in the wake of the pandemic, soaring inflation has forced the Fed to sharply raise interest rates to their highest levels in more than 20 years, which has also sent mortgage rates higher.
Mortgage rates have been falling, especially since the central bank kicked off its rate-cutting cycle with a 50 basis point cut last week, bringing rates to the 4.75% to 5% range.
The average interest rate on a 30-year mortgage is currently 6.09%, according to Redfin. In August, the average rate was 6.5%, down from 7.07% a year ago.
But Elijah de la Campa, senior economist at Redfin, offered a warning to would-be homebuyers who are waiting for mortgage rates to fall further.
“[T]”The Fed's recent rate cuts and planned future rate cuts were highly expected and are already largely priced into mortgage rates. When the Fed cuts short-term rates, longer-term interest rates, such as mortgage rates, don't necessarily fall by much,” de la Campa said.
“Housing affordability has improved for the first time in four years, so if you are looking to buy a home and can afford it, now may be a good time as it's unlikely to get significantly cheaper in the near future.”
Inflation also remains robust in the housing sector; Rising shelter prices According to the Ministry of Labor, key prices will rise from July to August.
Housing costs rose 5.2% year-on-year in August, even as headline inflation fell to 2.5%.
So even as the income needed to buy a home has fallen, homeownership remains out of reach for many Americans.
Redfin defines a home or property as “affordable” if the monthly payment after a 15% down payment is no more than 30% of a person's monthly income. The average household earns just $84,000, according to Redfin, 27% less than what's needed to buy the median-priced U.S. home, which costs $433,101.
