Residential Real Estate News
Average Americans Spend 38 Percent of Monthly Income on Mortgage Payments
For low-income families spend over 50 percent of income on mortgage payments each month
The latest NAHB/Wells Fargo Cost of Housing Index (CHI) highlights the ongoing affordability crisis in the U.S. housing market.
In the fourth quarter of 2024, a family earning the national median income of $97,800 needed to allocate 38% of its earnings to afford a mortgage on a median-priced new home. For low-income families--those earning just 50% of the median income--this figure surged to 76%.
The affordability challenge extends to existing homes as well. A typical family would need to spend 37% of its income on a median-priced existing home, while low-income households would have to devote 74% of their earnings to cover the same mortgage.
Urgent Policy Changes Needed
NAHB Chairman Carl Harris emphasized the need for policy reforms to address the housing affordability crisis. "The Cost of Housing Index is a wake-up call for policymakers to remove barriers that restrict new home construction," he said. NAHB's 10-point housing plan proposes key actions such as reducing regulatory burdens, improving building material supply chains, and reforming restrictive zoning laws to boost housing production.
Although the percentage of income required for a new home remained steady at 38% between the third and fourth quarters of 2024, affordability slightly declined for low-income families, increasing from 75% to 76%. Meanwhile, affordability for existing homes improved slightly, with CHI figures shifting from 38% to 37% for median-income families and from 75% to 74% for low-income households. This improvement was driven by a 2% drop in median existing home prices.
Housing Costs and Mortgage Trends
The fourth-quarter median new home price stood at $419,200, down slightly from $420,400 in the third quarter. Existing home prices followed a similar trend, decreasing from $418,700 to $410,100. However, the average 30-year mortgage rate edged higher, rising from 6.60% to 6.72%.
The U.S. Department of Housing and Urban Development (HUD) considers families "cost-burdened" when they spend more than 30% of their income on housing and "severely cost-burdened" when housing costs exceed 50% of earnings.
The CHI analyzes affordability across 176 metropolitan areas. In the fourth quarter, 10 metro areas had a CHI above 50%, indicating severe cost burdens for typical families, while 85 markets fell within the cost-burdened range of 31% to 50%. Only 81 markets had CHI figures at or below 30%, suggesting more affordable housing conditions.
Most and Least Cost-Burdened U.S. Markets
Top 5 Most Cost-Burdened Markets (Median-Income Families):
- San Jose-Sunnyvale-Santa Clara, CA - 87% of income needed for a mortgage
- Urban Honolulu, HI - 74%
- San Diego-Chula Vista-Carlsbad, CA - 69%
- San Francisco-Oakland-Berkeley, CA - 69%
- Naples-Marco Island, FL - 65%
Low-income families in these markets would need to spend between 129% and 174% of their income on housing.
Top 5 Least Cost-Burdened Markets (Median-Income Families):
- Decatur, IL - 16% of income needed for a mortgage
- Cumberland, MD-WV - 17%
- Springfield, IL - 17%
- Elmira, NY - 19%
- Peoria, IL - 19%
Low-income families in these areas would need to allocate between 31% and 39% of their income to housing costs.
The Path Forward
NAHB Chief Economist Robert Dietz underscored the urgency of tackling affordability challenges. "To create more attainable homeownership and rental opportunities, policymakers must eliminate regulatory barriers and foster a more supportive business environment for builders," he said.
The CHI continues to serve as a critical measure of housing affordability, highlighting the need for solutions that lower construction costs and expand access to affordable housing nationwide.
