Median-income homebuyers can afford $30k more house than year ago: Study

When it comes to buying a house, affordability continues to slowly improve.

U.S. households that have a median income — an estimated $86,300 — and enough money for a 20% down payment can now afford a $331,483 home, up $30,302 from $301,181 a year ago, according to a new report from Zillow. By “afford,” Zillow means that the monthly mortgage payment, including insurance and property taxes, would be under 30% of a household’s income.

“A $30,000 increase in buying power can open up a different neighborhood, bigger home or a home with fewer compromises,” the report says.

The improvement is at least partly due to interest rates that have come down slowly. The average rate on a fixed 30-year mortgage was 5.99% as of Feb. 27 but has since ticked up to 6.14%, according to Mortgage News Daily. A year ago, it was 6.79%.

For mortgages, even rates that are 0.5 percentage point lower can make a difference, said Kara Ng, senior economist at Zillow and author of the report.

“As a rough estimate, a half-point drop in mortgage rates could mean savings of about $1,000 a year for a typical U.S. home,” Ng said.

A 1 percentage point drop in rates could expand the pool of households that can afford to buy a home by about 5.5 million households, including roughly 1.6 million renters who could become first-time homebuyers, according to the National Association of Realtors. NAR said it estimated the income needed to afford a median-priced home assuming a 30-year mortgage, 10% down payment, and mortgage payment of 25% of income, and then calculated using a 7% mortgage rate and a 6% rate.

However, affordability remains strained. While the amount a median-income household can afford is higher than a year ago, that figure remains below the median price of a single-family home, which was $400,300 in January, according to NAR.

Based on that price and a 6.19% mortgage rate, the average in January, buyers would need an income of $94,032 to qualify for a mortgage, according to the NAR’s affordability index. That measurement also assumes the buyer has a 20% down payment, which in this case would be $80,060. And, of course, lenders consider more than just income in determining whether to approve a loan, including factors such as credit score, credit history and outstanding debt.

That income amount is less compared with a year earlier: When the average rate was 7.04% and the median home price was $398,100, buyers needed $102,096 in income to qualify, NAR’s affordability index shows.

Meanwhile, home values have risen much faster than household incomes. From 2000 to 2024, median per-capita income grew by around 155%, while median home prices increased by about 207%, according to a recent study from the Federal Reserve Bank of St. Louis. Additionally, mortgage rates jumped from below 3% in mid-2021 to nearly 8% in October 2023.

“Buyers are still feeling the impact of rapid…