It’s a fact, it is more difficult to purchase a property in today’s market compared to last year. Why? Because of the steadily growing home prices and the increase of the mortgage rates that have been in place for a while and are now significantly higher than last year and with that comes the salaries.
A recent article by the Miami Herald states that a single household in Miami Dade has to earn approximately $131,714 a year to buy a median price house that costs $589,000 and this includes the counties of Broward and Palm Beach.
This article is based on the latest update by HSH.com about “The salary must be earned to buy a home in the 50 largest metros”. According to the below chart, nationwide the fixed mortgage rate stands at 5.48%, the median home price is $413,500 and to buy that house the salary needed is $95,693.82.
To be more specific, according to HSH.com the median price in Miami is $589,000 which is $175500 more than the national average and for that, $131,714.82 to be earned per year and that is 38% more than the national average. These 50 metros also include New York, Boston, San Francisco and others.
The big fact according to the Miami Herald, in South Florida the median home prices are exceeding beyond the minimal wages earned by people. According to the 2016-2020 report from the US Census Bureau statistics the income earned by a single median household is $53,975 in Miami Dade and Broward counties. That was during that period of time but, did your income increase in the last 2 years? or remained the same for locals?
Moving further, according to the HSH report in the first three months of 2022 buyers needed to earn up to $103,744 with 20 % down payment and $121,075 with 10% down payment to buy a $530,000 median priced home.
Due to FED’s continuous interest rate hike, lenders in response have also been raising interest rates on conventional mortgages rapidly and as a result home ownership will become even more difficult for the majority of local residents unless their earnings increase. However, a recent article from Redfin says that Miami indeed had an increase of 16.9% of annual income between 2019-2021 and I actually did a recent video talking about this.
According to the data from the Miami Association of Realtors, single-family house median prices have consistently increased from $485,000 in September 2021 in Miami-Dade to $570,000 in July of 2022 that’s $85,000 in 11 months.
Let’s talk about affordability because this is the main point here that we must discuss. Affordability has certainly shifted over the last months with the increase in interest rates. But what affordability really is? Affordability is based on 3 things: prices, interest rates and wages.
For example, take a look at the below graph with data from NAR. This graph is showing how the affordability looks right now, is at a historically low level and it goes all the way back to the 90’s. The affordability has been great for all these years until now. Today it sits at 98.5.
A hundred in this graph means the average wage person can afford the average price of a home 100% of the mortgage payment.
This means, an average earner in this country can afford 98.5% of the average mortgage payments. Yes, homes are unaffordable right now. On average it is below what a person can afford. However, not tremendously a huge thing either.
This other chart below shows rapid increase in the monthly mortgage rates.
Notice how the monthly mortgage payments in 2021 was $1,253 in June and in June of this year went up to $1,944. I know the table is showing only until June but this is the last info they have published. Take a look at the increases between the months of February through June of this year. It has been a rapid increase.
This other chart below shows the mortgage payment to income ratio. This is another perspective on affordability. So today a 30 year fixed mortgage with 20% down payment on a median priced home with a median income sits at 25.4% breaking the record of 2006 when it was 24.7%. This means that 25% of a person’s income is dedicated to a mortgage payment and homes are less affordable or even unaffordable.
Here is a chart showing the median family income versus qualifying income to buy a home across the country. So as you can see in the South the median income is $84,114 vs the qualifying income $84,672.
Looking nationwide, the qualifying income is $93,312 compared to $91,952. So yes, there is a gap, no doubt about it.
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