Even with pay raises, younger homebuyers struggle with affordability
It’s no secret that homeownership has moved further out of reach for many people, especially younger generations challenged by too-high home prices against too-low wages. Here’s the latest on the housing affordability picture.
Key homeownership and income insights
- Fifty-nine percent of U.S. workers say their incomes haven’t kept pace with inflation in the 12 months since October 2023, according to Bankrate’s 2024 Pay Raise Survey. Still, 61% have received a raise in the same time frame.
- Seventy-eight percent of U.S. adults in 2024 say they consider owning a home to be part of the American Dream, according to Bankrate’s 2024 Home Affordability Report.
- To afford a home priced $402,343 (the national median as of January 2024), Americans need an annual income of $110,871, according to Bankrate’s 2024 Home Affordability Data Study.
- On an annual basis, home price appreciation has outstripped wage growth in 71.1% of U.S. counties as of the third quarter of 2024, according to ATTOM.
- As of December 2024, the typical mortgage payment on a median-priced, existing single-family home takes up 26% of the median family income.
Pay raises collide with high home prices and mortgage rates
More than half of millennial workers (56 percent) and Gen Xers (48 percent) reported receiving a pay raise since October 2023, followed by Gen Zers (43 percent) and baby boomers (42 percent), according to a Bankrate’s Pay Raise Survey, conducted in October 2024.
While that’s good news for many aspiring homebuyers, two major factors have tamped down those gains: home prices are at or near record highs, and mortgage rates are significantly elevated from their pandemic levels. Most U.S. adults (78 percent) who don’t own a home but desire to cite affordability-related reasons as holding them back, according to a separate Bankrate report on home affordability.
Another factor: inflation. The majority of employed Americans (59 percent) say their income has not kept pace with increases in their household expenses over the past 12 months, according to Bankrate’s Pay Raise Survey.
Overcoming the home price and wage gap
Despite the obstacles, younger generations are still buying homes. In fact, 38 percent of homebuyers — the largest group — are millennials, according to the National Association of Realtors. Of those millennial buyers, the older cohort (age 34 to 43) have a median household income of $127,700, while the younger (age 25 to 33) have a median income of $106,000. The median income for Gen Z buyers: $72,300.
Even if they have the income to qualify for a mortgage, many would-be buyers don’t have enough savings to cover a down payment and closing costs. For many, too, a pay raise isn’t on the near horizon.
These strategies can help:
- Explore low- or no-down payment mortgages: If you have strong credit and not a lot of other debt, you could qualify for a conventional loan with just 3 percent down. A lower-credit score FHA loan can be had for 3.5 percent down. If you’re an eligible service member or veteran, you could get a VA loan with no down payment. Likewise for USDA loans, available for homes in rural areas.
- Look into down payment assistance: There are many forms of down payment assistance, from outright grants to lower-cost second mortgages. These are often geared toward buyers with low to moderate incomes based on location. Many programs can be applied to the down payment and closing costs, too.
- Reconsider where you buy: Some places are simply much more expensive than others. If you have the desire and flexibility, a move to a more affordable city or exurb/suburb could significantly open up your home buying options.
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