Americans need minimum annual income of $107,700 to afford a house, says new study

Housing prices in the United States have skyrocketed, reaching unsustainable levels at current income levels of Americans. This, however, should not be construed as inflation. It is only a mismatch between demand and supply – that supply is poor in relation to demand – and in no way affect the value of the dollar.

A recent study on the affordability of houses, conducted by Oxford Economics, has found that households need a minimum average annual income of $107,700 to provide for the cost of a single-family house, which include property taxes and insurance premiums.

This points to a near doubling of housing costs from the 2019 levels when a similar house was affordable at income levels of around $56,800.

The report points out that increases in salaries and incomes have failed to keep pace with growth in housing costs so much so that the affordability levels have fallen to 36 per cent in 2024 from 59 per cent in 2019.

It could be that enough houses are not being built and increase supply to meet the rising demand. The burden of rising housing costs could deter immigration as prospective settlers wold look to more affordable alternative destinations.

The fact is that rentals have also doubled while mortgage rates are ruling high with the Federal Reserve not yet relenting on interest rates.

The Oxford Economics study found California as the most expensive in the US, with some of the least affordable cities like San Jose, San Francisco, Los Angeles, San Diego and Honolulu, where only less than 15 per cent of households could comfortably meet their housing costs. 

The most affordable cities were in the Midwest and South, like Cleveland, Louisville, Detroit, St Louis, Oklahoma City and Memphis, where housing costs were in the $64,600-75,300 range. 

However, even in those cities, only 50 per cent of the households were earning enough to meet housing costs.

In some of the most affordable cities like Decatur (Illinois), Cumberland (Maryland), Youngstown (Ohio), Charleston (West Virginia) and Elmira (New York), nearly 75 per cent of the households were found to earn enough to meet single-family housing costs.

Various other studies also point to high cost of housing in the US and analysts expect rentals and mortgage rates to remain elevated until when the Fed decides to cut policy rates.