How much of a salary do you need to buy a median-priced home in the US? In 2022, the median home price in the US was around $400,000. You might be surprised at how much you’ll need to earn to afford an average home in the US.
According to this article from Yahoo, an analyst who crunched the numbers calculated that your net pay to afford a $400,000 home is around $10,000-$11,000 per month. This roughly translates to $165,000-$195,000 annually. In terms of salary, of course, this is on the higher end of salaries. There are many households with this salary, but there are many more households with incomes well below. In fact, according to the US census, the median household income per capita was below $70,000 in 2021. So how were these numbers calculated?
The article calculates these numbers using $400,000 as the home price and a down payment of 7%, which is on the lower side of down payments. The interest rate is set at 6.6%, which is projected to go up within the next 12 months. The state tax rate is at 1%, homeowner’s insurance is at $140, PMI is at 0.5%, and lastly, these numbers are all based on the idea that your mortgage payment shouldn’t be more than 28% of your gross income.
This may or may not apply to everyone. If you have a significant amount of debt or a more expensive lifestyle, the costs associated with a $400,000 home may be larger than described in the article. If you’re able to make a larger down payment, your money payments may be lower, but don’t expect the interest rates to go down any time soon.
Interest rates are expected to continue to climb before they start to fall. As the federal reserve continues to announce rate hikes, it’s possible that we’ll see interest rates closer to 9% before they ever come down to pre-2021 numbers.
Although the median home price requires a six-figure income, it doesn’t mean you’ll be living the life of luxury. Homes in metropolitan areas for this amount where salaries are higher are often in unlivable conditions or require significant remodeling. On the other hand, homes in rural areas for this amount often aren’t available to residents because the salaries aren’t high enough to qualify.
So this gives you an idea of the current housing market and where we’re headed in 2023. If you’re a home buyer or a realtor, are you seeing this in your area? Let us know in the comments.