Families Must Spend 38% of Income on Mortgage

A new NAHB/Wells Fargo survey also found a typical family would have to pay 36% of their income for a median-priced existing home.

WASHINGTON – A new quarterly Cost of Housing Index unveiled today by the National Association of Home Builders (NAHB) and Wells Fargo underscores the housing affordability crisis in America by revealing that in the first quarter of 2024, 38% of a typical family’s income was needed to make a mortgage payment on a median priced new single-family home in the United States.

Low-income families, defined as those earning only 50% of the area’s median income, would have to spend 77% of their earnings to pay for the same new home.

The figures track closely for the purchase of existing homes in the U.S. as well. A typical family would have to pay 36% of their income for a median-priced existing home while a low-income family would need to pay 71% of their earnings to make the same mortgage payment.

“The Cost of Housing Index clearly shows that a growing shortage of affordable housing is hurting families and communities nationwide and that local, state and federal officials must act on this issue,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “NAHB has released a 10-point plan to tackle the housing affordability crisis that focuses on the need to address excessive regulations, inefficient local zoning rules, costly building codes, and many other factors that are dramatically affecting home prices and preventing builders from constructing more attainable, affordable housing.”

“With a nationwide shortage of roughly 1.5 million homes, the lack of housing units is the primary cause of growing housing affordability challenges,” said NAHB Chief Economist Robert Dietz. “Policymakers at all levels of government need to enact policy changes that will allow builders to construct more homes, such as speeding up permit approval times, providing resources for skilled labor training and fixing building material supply chains.”

The NAHB/Wells Fargo Cost of Housing Index, or CHI, is a quarterly analysis of housing costs in the U.S. and at the metropolitan area level. The CHI represents the share of a typical family’s income needed to make a typical mortgage payment. The mortgage payment is calculated by taking median home prices, assuming a 10% down payment, and adding taxes, insurance and PMI. Median family income is published by the Department of Housing and Urban Development. A low-income CHI is also calculated for families earning only 50% of the area’s median income.

The U.S. data for the percentage of earnings needed to purchase a new home in the first quarter is based on a national median new home price of $420,800 and median income of $97,800. The corresponding price for an existing home is $389,400.

HUD defines cost-burdened families as those “who pay more than 30% of their income for housing” and a severe cost burden is defined as paying more than 50% of one’s income on housing.

The CHI breaks down the percentage of a family’s income needed to make a mortgage payment on an existing home in 176 metropolitan areas based on the local median home price and median income. Percentages are also calculated for low-income families in all of these markets.

In eight out of 176 markets in the first quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home). In 80 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 88 markets where the CHI is 30% of earnings or lower.

The top 5 severely cost-burdened markets

San Jose-Sunnyvale-Santa Clara, Calif., was the most severely cost-burdened market on the CHI, where 84% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:

  • Urban Honolulu, Hawaii (73%)
  • Naples-Marco Island, Fla. (71%)
  • San Diego-Chula Vista-Carlsbad, Calif. 70%)
  • San Francisco-Oakland-Berkeley, Calif. (69%)

Low-income families would have to pay between 138% and 168% of their income in all five of the above markets to cover a mortgage.

The top 5 least cost-burdened markets

By contrast, Peoria and Decatur, Ill., tied as the least cost-burdened markets on the CHI, where families needed to spend just 14% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are:

  • Cumberland, Md.-W.Va (15%)
  • Springfield, Ill. (16%)
  • Elmira, N.Y. (16%)

Low-income families in these markets would have to pay between 28% and 32% of their income to cover the mortgage payment for a median-priced existing home.

© 2024 Florida Realtors®

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