The dream of owning a home is becoming increasingly out of reach for many Americans, as the cost of purchasing a new house continues to rise. A recent study by Bankrate revealed that in order to afford a typical home in 2025, the household income required is around $117,000. This marks a significant increase from just before the pandemic, when the necessary income was $78,000. In a span of five years, the affordability of homes has decreased by 50%, while wages have only risen by 27%.
According to Redfin chief economist Daryl Fairweather, there are two main factors contributing to the difficulty in affording a home: high prices and high mortgage rates. The rise in home prices also leads to increased property taxes and home insurance premiums, further adding to the financial burden of homeownership. Additionally, mortgage rates have nearly doubled compared to five years ago, making it more challenging for individuals to secure financing for a home purchase.
First-time homebuyers, who are more likely to rely on borrowing money for a mortgage, are particularly impacted by the current housing market conditions. With 26% of houses purchased in 2024 being bought with all cash, first-time buyers with smaller down payments are finding it increasingly difficult to compete. This has resulted in the average age of a first-time homebuyer rising from 32 in 2020 to 38 today, as they struggle to navigate a market dominated by cash buyers and bidding wars.
Despite the ongoing challenges, there may be a glimmer of hope on the horizon. Bankrate analyst Jeff Ostrowski predicts a 5% increase in home prices this year, but suggests that we may have reached the limits of affordability. While inventory remains tight, the era of intense bidding wars and multiple offers on properties may be coming to an end.
Looking ahead, it’s important for prospective homebuyers to carefully consider their options. While the current market may not seem favorable for buying a home, waiting could potentially lead to even higher prices in the future. However, Redfin’s Daryl Fairweather points out that the rental market is currently more affordable, offering a viable alternative for those unable to purchase a home at this time.
In conclusion, the housing market is undergoing significant changes that are impacting the affordability of homes across the country. As prices continue to rise and competition remains fierce, it’s essential for individuals to weigh their options carefully and consider all factors before making a decision on homeownership. While the future may seem uncertain, staying informed and exploring alternative housing options can help navigate the challenges of the current market.
