Home ownership further out of reach as rising prices widen affordability gap

In Los Angeles, owning a home is becoming increasingly difficult for most Americans due to high mortgage rates and escalating prices, pushing the limits of affordability for potential buyers. According to data from Realtor.com released on Thursday, a homebuyer now needs to have an annual income of at least $114,000 to purchase a home priced at the national median listing price of $431,250 in April.

This analysis is based on the assumption that the buyer will make a 20% down payment, finance the remaining amount with a 30-year fixed-rate mortgage, and ensure that their housing costs do not exceed 30% of their gross monthly income, a common measure of housing affordability. Compared to six years ago when the median U.S. home listing price was $314,950 and the average 30-year mortgage rate was around 4.1%, buyers now need an additional $47,000 per year to afford a home, with the current rate averaging 6.76%.

The income required to afford a median-priced U.S. home surpassed six figures for the first time in May 2022 and has remained above that level since then. Median household income stood at approximately $80,600 annually in 2023, as per the U.S. Census Bureau.

In major metropolitan areas like San Francisco, Los Angeles, New York, and Boston, the annual income needed to afford a median-priced home exceeds $200,000, reaching over $370,000 in San Jose.

While low mortgage rates fueled a housing market boom during the pandemic, driving up sale prices significantly, the market has cooled off since 2022 as mortgage rates rose from their pandemic lows. Home prices in the U.S. surged by more than 50% between 2019 and 2024.

Although the housing market has experienced a slowdown in sales, there are some positive signs for potential buyers. Home prices are increasing at a slower pace compared to the frenzied market seen during the pandemic. The median sales price of a previously owned U.S. home rose by 2.7% in March to an all-time high of $403,700, marking the smallest annual increase since August.

In April, the median price of listed homes only increased by 0.3% from the previous year, offering buyers more options. Active listings, which include all homes on the market except those awaiting final sale, increased by 30.6% last month compared to a year earlier, with significant jumps seen in cities like San Diego, San Jose, and Washington D.C.

As properties stay on the market for longer periods, more sellers are reducing their asking prices, with 18% of listings seeing price cuts last month, according to Realtor.com. Chief economist Danielle Hale noted that sellers are becoming more flexible on pricing, and while higher mortgage rates are impacting demand, there are opportunities emerging for prepared buyers in the rebalancing market.