Homeownership Costs Soar as Affordability Gap Grows Wider

For many prospective homebuyers, the dream of owning a home continues to feel increasingly out of reach. According to a recent Zillow report, even if a median-income household has $73,000 saved for a down payment, they are still falling short by more than $17,000 due to the escalating costs of homeownership. This affordability gap, compounded by rising home prices and mortgage rates, has left many aspiring buyers struggling to secure a place of their own.

While this spring’s housing market offers some relief for buyers, with more homes on the market and an increasing number of sellers lowering their asking prices, the financial requirements for purchasing a home remain steep. As affordability continues to be a major hurdle, interest in renting single-family homes has surged, while the desire to buy a home has decreased for many.

The Growing Barriers to Homeownership

In the current economic landscape, even if a buyer has saved $73,594 for a 20% down payment, they would need an annual income of about $100,000 to comfortably afford a median-priced home, which is valued at $367,969. In this scenario, the household would still be short by $17,670. If their savings only allowed for a 10% down payment, that same household would need an income boost of $36,287 to close the gap.

This affordability challenge is especially stark in large metropolitan areas, particularly in California. For instance, in San Jose, a median-income household would need a salary increase of more than $250,000, even if they had saved an impressive $330,000 for a 20% down payment. Similarly, median-income households in San Diego, Los Angeles, and San Francisco would need six-figure raises to meet the cost of homeownership in those areas.

Regional Disparities: Where Buyers Are Struggling the Most

Five years ago, nearly 39 major metros had median incomes that could comfortably cover the average mortgage payment. Today, that number has dwindled to just 11. The most significant gaps are often seen in large coastal cities, but some mid-sized markets in the Midwest and Northeast offer a bit more relief. In Cleveland, for example, median-income households have more than $11,500 in additional income compared to the average home price. Other cities such as Pittsburgh, St. Louis, and Cincinnati have similarly modest affordability gaps, but overall, the trend points to a shrinking number of places where homeownership is financially feasible.

The Rising Popularity of Single-Family Rentals

As homeownership becomes less attainable for many, more people are turning to single-family rentals. These properties now command rents that are 41% higher than they were five years ago, compared to a 30% increase for multifamily units. With affordability barriers increasingly severe for first-time buyers, the rental market is becoming an attractive option for those who are unable to buy.

How Buyers Are Finding Ways to Make It Work

In an effort to make homeownership a reality, buyers are turning to a variety of sources to fund their down payments. More than half of all homebuyers rely on multiple sources of funding, with savings accounting for the largest portion (72%). Additionally, the sale of a previous home (46%) and financial assistance from friends or family (38%) are also common ways to cover down payment costs.

Zillow’s platform now includes a down payment assistance tool to help buyers explore available resources in their local areas. This initiative aims to make the home-buying process a bit easier for those who are struggling to save enough for a down payment.

Looking Ahead: The Need for Long-Term Solutions

While current market conditions may offer some temporary relief for buyers, the long-term solution to the affordability crisis lies in addressing the root causes. As Zillow’s Senior Economist Kara Ng notes, “We need lasting solutions, starting with policies that allow more homes to be built in the right places.” Without meaningful changes to the housing supply, many potential buyers may continue to find themselves shut out of the market.

Ultimately, as the cost of homeownership continues to climb, prospective buyers will need to navigate an increasingly complex financial landscape. Whether through savings, loans, or other forms of assistance, the road to homeownership will remain challenging for many, but with the right support, it’s still possible to make that dream a reality. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.