Record-high down payment, six-figure salary: US homebuying essentials

Many people believe a key component of the American Dream is owning their own home, but it’s becoming harder to do so for those without significant financial capabilities.

Two reports over the past week highlight how the barriers to homeownership have reached levels that previous generations would not have imagined possible, but for younger Americans it is a stark reality.

First, the down payment. Without an inheritance or generous supporter, saving for this key to home financing has always been something that is best started as soon as possible. But according to a recent report from CoreLogic, the average down payment in 2023 reached an all-time high of $84,000 or 16% of the purchase price.

Not that this is necessarily the required amount, but with rates elevated and lenders tightening conditions, many buyers paid larger lump sums to ease monthly payment costs. And if the market – especially in higher priced areas where incomes tend to be higher – is seeing buyers with more upfront cash, those with less may struggle amid tight supply.

The report notes that the average down payment made in 2023 ranged from around $30K for low-tier homes (priced at less than 75% of the median sales price) to just above $56K for mid-tier, and to almost $144K for high-tier homes.

SELLING PRICE

The second part of the homebuying challenge is the income required to secure a mortgage.

Bankrate.com has discovered that buyers need a six-figure income to afford a median priced home in almost half of the 50 states and DC.

Its analysis of home sales, mortgage rates, property taxes, and homeowners insurance rates revealed that an annual income of $110,871 is required to buy the nationwide $402,343 median priced home according to Redfin data. That is a 46% increase in required income since 2020.

“Homes have become less affordable because home price appreciation has so far outpaced wage growth,” said Bankrate analyst Jeff Ostrowski. “Why have home prices gone up so quickly? Blame supply and demand. Over the past few years, the supply of homes has been constrained by a number of factors, including muted homebuilding and the lock-in effect. But demand for homes has been growing, and there are more buyers than sellers.”

Buying in the West and Northeast requires the highest most annual income to afford a typical home, while aspiring homeowners in the South and Midwest need lower annual incomes by comparison.

The states where required income has risen the most since the start of 2020 are: Montana (+77.7%), Utah (+70.3%), Tennessee (+70.1%), South Carolina (+67.3%), and Arizona (+65.3%).