Homebuyers must earn $400,000 to afford a home in these metro areas

Homebuyers must earn $400,000 to afford a home in these metro areas

As home prices and interest rates rise, potential home buyers will need a salary of $114,627 to afford a median-priced home in the U.S., according to a recent report from real estate site Redfin.

If you want to buy in one of the most expensive metropolitan areas in the US, you’ll need to earn even more. Researchers estimate that in the top 10 cities you’ll need to make more than $200,000 or close to that. Buying in the two most expensive metros would require salaries of more than $400,000. Redfin analyzed average monthly mortgage payments in August 2023 and August 2022.

To put these numbers in perspective, according to the report, the median U.S. household income in 2022 was $75,000.

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Metropolises where home buyers have to earn the most

According to Redfin, the two metros with the highest salaries are San Francisco and San Jose, California, at $404,332 and $402,287, respectively.

“The Bay Area has historically been one of the most expensive markets in the country,” said Daryl Fairweather, chief economist at Redfin.

Three other California metropolitan areas – Anaheim, Oakland and San Diego – round out the top five, requiring interested buyers to earn between $240,000 and $300,000 per year.

The average income in these cities is high, but so are the real estate prices. Higher interest rates have increased the cost of borrowing, requiring buyers to demonstrate significant income to take out a mortgage.

Why the New York metropolitan area is at the bottom of the list

Midtown Manhattan, New York, as seen from Hoboken, New Jersey.

Gary Hershorn | Corbis news | Getty Images

While New York’s Manhattan borough may have the highest cost of living among U.S. cities, according to the Council for Community and Economic Research’s Cost of Living Index, the New York metropolitan area overall ranks ninth on Redfin’s list.

That’s because the metropolitan area extends beyond Manhattan and the city’s four other boroughs and extends into surrounding boroughs.

“Even though Manhattan is really expensive once you get to the outskirts [in] In the New York metropolitan area, it actually becomes quite affordable,” Fairweather said.

Interested homebuyers in the area still need to earn six figures a year to afford a home, about $197,734, Redfin estimates.

Cash purchases are expensive for first-time home buyers

In some highly competitive markets, earning a high salary isn’t enough. Buyers may be competing with experienced homeowners who can make cash offers.

Some homebuyers are using their home equity to buy new homes in cheaper areas rather than financing them to avoid an 8% mortgage rate, Fairweather said.

“That could cause prices to rise and affordability to fall,” she said.

The proportion of first-time home buyers fell to 27% in September, compared to 29% in August. according to the Realtors Confidence Index survey. During the same period, the proportion of cash buyers increased from 27% to 29%.

Historically, first-time home buyers made up about 40% of the real estate market, said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

“The 27% figure highlights the affordability and inventory issues faced by first-time homebuyers,” Lautz said.

Lautz added that cash-only homebuyers are largely older consumers who have home equity and are able to pursue real estate transactions without having to finance new mortgages.

Additionally, some cash-only buyers are local to the area where they are purchasing, while long-distance movers are more likely to pay the full amount.

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