The past year has been tough for first-time homebuyers. The U.S. housing market has been running wild with home prices surging more than 20% in 2022 in comparison to the same period in 2021. It also didn’t help that mortgage rates jumped from 3.11% to 5.1% since January.
As a result, an average household now needs $30,000 more in annual income to be able to afford a home, according to Mike Miedler, the CEO of the real estate company Century 21.
“It is that first-time homebuyer who is really affected by the spike in interest rates,” Miedler said in a recent chat with Yahoo Finance Live. “If you look back a year ago, you need about $30,000 to $33,000 more household income in order to afford the home at today’s interest rate at the median price.”
The spike in home prices wasn’t followed by the income growth that currently stands at 4.8%. Add an almost 100% increase in down payment, and it is easy to see why buying a home is a challenge that many are not ready to tackle.
However, there are some positives on the horizon. First, there are signs that the housing market is starting to cool off. Home sales are down almost 6% across the nation, and mortgage applications plummeted in recent months. This is causing a rise in inventory, which should, in theory, cause a price dip. It remains to be seen whether that turns out to be the case.