Real estate market: why is it harder to buy a house today?

If you're looking for a home and it seems like your money doesn't go as far as it did before the pandemic, it's not just your imagination playing tricks on you. According to a recent Zillow study, today, homebuyers need to earn about $50,000 a year more than before the pandemic to afford a home without stretching their finances too thin. This sobering statistic reminds us of how challenging the real estate market is for most buyers today. It also explains why housing affordability has become a central issue in election campaigns across the country.

Although many would like to blame one factor for the state of the real estate market

The reality is that various factors are working against potential home buyers. It's hard to see the blow coming. The real estate market after the pandemic is an example of a situation where potential buyers expected one hit but were struck by another that they didn't see coming. Home prices were high before and during the pandemic, but interest rates between two and three points softened the blow of prices for buyers. A new unexpected factor has been the nearly 43% increase in home values nationally since 2020, according to Zillow. A 43% price increase over three years is one thing, but when it happens against the backdrop of mortgage rates rising to six and seven percent, that's two blows that few anticipated.

The impact of this unexpected "one-two punch" on the real estate market was profound.

The shortage of inventory and slow wage growth have played a crucial role. First of all, there is an issue with inventory.

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Rising prices and interest rates affect not only consumer behavior. People who financed homes before the pandemic with thirty-year fixed-rate mortgages during the best times, when interest rates were below 3%, are referred to as "golden handcuffs" because what they can buy at post-pandemic prices and interest rates does not represent an improvement over what they already have. This has led to a kind of vicious cycle where even baby boomers, who have reached the age when previous generations sold their single-family homes and downsized, are choosing to stay put.

Every time there is a shortage of inventory, the lack has a strong impact on the market prices of homes that come onto the market.
Unfortunately for potential buyers, their salaries have not increased enough after the pandemic to offset the rise in prices and mortgage rates. It's discouraging math for home buyers post-pandemic.

According to a Zillow study

An American family with an annual income of $59,000 and a 10% down payment could comfortably afford to pay a mortgage on the average American home in 2020. The standard affordability guideline was that the monthly payment should not exceed 30% of the buyer's income. At that time, the average family income in America was $66,000, which meant that millions of Americans could afford to buy an average home. Although Zillow estimated that after the pandemic, the average annual income of an American family rose to $81,000, buyers with a 10% down payment now need to earn over $100,000 a year to comfortably afford the same home they could have purchased before the pandemic with an annual income of $59,000.

Perhaps the most frightening thing about these numbers is that they reflect the necessary income to purchase an average home in America today.

Buyers in traditionally the most desirable cities in America, such as New York or Los Angeles, must earn well over $100,000 to afford the average home in those markets. The same Zillow study found that the median income needed to comfortably buy a home in Los Angeles is $279,000. This may explain why Cleveland, where you can still afford the average home with an annual income of $70,000, is one of the most active real estate markets in America. Follow all updates on this topic by adding Benzinga Italia to your bookmarks or by subscribing to our social networks: X and Facebook.