U.S. Homeownership Costs Exceed 40% of Income in Most Markets

Recent analysis by Bankrate reveals a significant shift in the affordability landscape for American homebuyers, highlighting that the traditional guideline of spending no more than 30% of income on housing costs is largely outdated. Historically, this rule accounted for mortgage payments as well as homeowner’s insurance, property taxes, and HOA fees, but contemporary data shows that the typical family must now allocate over 40% of their income toward housing expenses to purchase a median-priced home. This change is particularly pronounced in major U.S. markets, exacerbated by rising home prices, fluctuating mortgage rates, and wage growth that has not kept pace with housing costs. The median home price, tracked by Redfin, currently stands at $441,000, reflecting an increase of over $100,000 in five years. Despite recent declines, mortgage rates remain significantly higher than they were half a decade ago. Concurrently, wages have increased by approximately 24%, lagging behind a 32% rise in home prices, according to Bureau of Labor Statistics and Redfin data. This disparity underpins the mounting affordability challenges for prospective buyers. Bankrate's examination of the 34 largest U.S. housing markets indicates that only three cities — Pittsburgh, Detroit, and St. Louis — adhere to the old affordability benchmark. Nationally, families must dedicate approximately 43% of their income to homeownership costs. In several high-cost markets, the income share required is notably higher: Seattle demands 54%, New York requires about two-thirds, and Los Angeles tops the scale with 75% of typical earnings needed to afford a home. Further underlining affordability struggles, Bankrate found that 75% of homes on the market are inaccessible to typical households. The National Association of Realtors also reported that the median age of first-time homebuyers has risen to 40, reflecting delays in homeownership as affordability barriers mount. Linda Bell, a home lending expert with Bankrate, notes that while exceeding the 30% guideline might work for some, potential buyers should carefully assess their financial situation to avoid becoming "house poor." She stresses the importance of balancing housing costs with other financial priorities such as retirement savings, emergency funds, and basic living expenses. This caution comes amid the goal of fostering sustainable homeownership decisions rather than encouraging premature purchase commitments. These insights underline a shifting market dynamic where housing affordability constraints are reshaping buying behaviors, impacting lender risk assessments, insurance considerations, and broader economic patterns within U.S. real estate. Stakeholders in mortgage lending, insurance underwriting, and financial planning may find these trends critical for adjusting strategies that address evolving client needs and regulatory compliance around lending standards.