For most people in the U.S., buying a home is the single largest investment that they will make. Not only that, but it is viewed as a rite of passage in our society and is linked to the American Dream. Owning a home offers freedom, stability, a sense of community and so much more. But today, for many, that dream is becoming harder to achieve. Some of the issues buyers face today are elevated mortgage rates, increased home prices, low housing stock, and economic hardship. Currently, the national average home price sits at around $384,500, but let’s take a look at how things stack up in two of the largest housing market states in the country: Texas and California.
In Texas, the state’s median home price is $340,500 and the median household income in Texas is $72,284, compared to the national median household income of $74,755. 62% of people own homes compared to the national average of 65%. In California, the average home value is $783,500, and the median household income is $91,551. This is higher than the national average of $74,755, and the home ownership rate is only 55% -- 15% less than the national average of homeownership in the U.S.
The Takeaway?
Homeownership is plummeting at an alarming rate, and we are currently at the lowest rate since 1970.
The average interest rate is 7.7%, which is dangerously close to 8%, so if a homebuyer earns the median household income and puts 10% down, they will have to spend 40% of their income on mortgage payments. To get that down to 30% -- which is a good financial standard – the buyer’s income would need to be $107,000. If rates rise even higher, the salary needed to afford a house would need to be $114,000 – which is well above the current national median household income of $74,755.
According to the National Association of Realtors (NAR), this is not even the biggest problem. The toughest challenge is producing a down payment. If the national average home price is $384,500, buyers need a down payment of almost $40,000.
To put it boldly, house affordability is plummeting. Buying a house is one of the biggest financial commitments you will make, and it doesn’t look like it is going to get any easier anytime soon.
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