Americans require almost twice the annual salary to afford a median-priced home compared with a typical apartment for rent. According to a Redfin report, this threshold is $116,633 per year, which is 81.8% more than the $64,160 needed to afford the typical rental unit.
The trend has continued to widen. Last year, a home buyer would have needed to earn $110,808 to afford a typical home for sale, about 73% more than the $64,000 required of renters. Two years ago, the gap was only 54.5%, with buyers needing to earn $101,341 and renters needing $65,600. Going back to 2021, homeowners only needed to earn $63,925 per year to afford the typical home for sale, 17.3% more than the $54,520 required for a typical rental.
Redfin bases affordability on the commonly cited metric that homeowners should spend no more than 30% of their income on their monthly housing payment. The typical U.S. household earns roughly $86,000 per year, which is $30,000 less than they need to afford the typical home for sale.
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The growing gap in affordability is an indication that the cost of buying a home is rising faster than the cost of renting, a reversal of the dynamic just five years ago when rents were skyrocketing and mortgage rates hit record lows, Redfin said.
The median home sale price has been rising at a rate of about 4.5% year-over-year for months and reached $424,000 in February. At the same time, the average 30-year fixed mortgage rate is more than double its record low during the pandemic, at more than 6.5%, which is creating a lock-in effect that makes it difficult for homeowners with lower rates to sell.
Median asking rent, on the other hand, rose just 0.2% year-over-year in February to $1,604. An influx of new supply has stabilized rents below their record high, with renters having more options and landlords having a harder time boosting rents. Supply in the for-sale market is more constrained, which has fueled bidding wars and larger price increases.
“It has become increasingly challenging for American renters to make the shift to homeownership thanks to the triple whammy of rising home prices, high mortgage rates and a shortage of houses for sale,” said Redfin senior economist Elijah de la Campa. “The gap between what someone must earn to buy versus rent may shrink in the coming months, but only because rents are expected to rise as the number of new apartments hitting the market tapers off due to a construction slowdown.”
The largest home buying premium can be found in San Jose, California, where a buyer needs an annual income of $408,557 to afford the typical home for sale. That is 218% more need for the typical apartment for rent in the city. Meanwhile, in Pittsburgh, homeowners need an annual income of $66,350 to afford a typical home, which is 14.4% more than the typical apartment for rent.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
