Numbers gap shows why potential home buyers are struggling

Median income households are coming up short on the necessary earnings to make a down payment on a home, according to Zillow research.

Five years ago, a median household could afford a typical home, but in today’s market, those same households need to earn more than $17,000 extra to afford the mortgage payments on a home. Currently, median earners in just 11 markets can afford an average mortgage—down from 39 markets five years ago.

“Affordability remains a steep hill to climb, especially for first-time buyers,” said Kara Ng, senior economist at Zillow. “While the financial bar has gotten higher, we’re also in the middle of the most buyer-friendly spring since before the pandemic for those who can make the finances work.”

See also: Pending home sales drop in April, all about mortgage rates, say NAR

Inventory is higher, while prices have softened, she said, leading to more negotiations on price. But affordability pressures have helped chill buyer demand, while increasing interest in single-family rentals.

To comfortably afford a typical home worth $367,969, a buyer needs to make nearly $100,000 a year, assuming they have $73,594 for a 20% down payment. That requires a median income household of $82,168 to earn an additional $17,670. With a 10% down payment, the increase needed would be more than $36,000.

Markets that are friendly to median earners are typically mid-sized and Midwestern, the research found, including Cleveland, St. Louis, Cincinnati, Detroit, Louisville and Chicago. Markets that would require more than $100,000 in additional income to afford a typical mortgage payment with 20% down include the California cities of Los Angeles, San Francisco, San Diego and San Jose.