FILE-Real estate agents arrive at a brokers tour showing a house for sale in San Rafael, California. (Photo by Justin Sullivan/Getty Images)
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The soaring prices of homes is making it daunting for many consumers to afford a house in the current market.
At the beginning of 2025, housing prices increased almost 4% and last year the typical existing single-family home topped a new record high of $412,000 based on data from the State of the Nation’s Housing report from the Joint Center for Housing Studies (JCHS) of Harvard University.
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Americans need a higher income to purchase a house
By the numbers:
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The Harvard University housing report reveals that home appreciation and higher interest rates are increasing homebuyers’ mortgage payments.
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Monthly mortgage payments on a median-priced home jumped by $90 to $2,750 a month for first-time homebuyers, which factors in a 30-year loan with a 3.5% down payment. The report revealed that a homebuyer would need an annual income of at least $126,700 to afford this monthly payment. But in 2023, only 6 million of the 46 million renters in the U.S. met that annual income threshold, the Harvard University report noted, citing the American Community Survey.
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While home prices vary in the U.S. housing market, a prospective homebuyer still needs to earn at least $100,000 in 53% of all cities to afford the median-priced home, which is up from 11 percent in 2021.
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Another obstacle prospective homebuyers are facing is affording a down payment, which has increased with rising home prices. The report found that the inability to afford a down payment resulted in many Americans continuing to rent homes.
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A 2024 report from the Federal Reserve noted that a homebuyer last year needed $26,800 to cover both the closing costs and a 3.5% down payment on a median-priced home, or $95,000 for closing costs and a 20% down payment.
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The report also found that the U.S. homeownership rate dipped in 2024 for the first time in eight years, to 65.6%, and then continued to decline 65.1% in the first months of 2025. Meanwhile, the steepest decline in homeownership happened with Americans under 35 years old, who are typical first-time home buyers, suggesting that younger consumers are being priced out of homeownership.
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Renters spending more of their income on housing
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Dig deeper:
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While homeowners are managing rising housing costs, renters are facing a similar financial burden. The Harvard Housing report noted that in 2023, the number of renters spending over 30% of their income on housing, called “cost-burden renters,” climbed to 22.6 million. More than 12 million renters are substantially impacted, spending over half of their income on rent.
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Meanwhile, the number of renters spending over 30% of their income surged among middle-income earners, with over 70% of renters earning $30,000–$44,999 now considered cost-burden renters.
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Separately, the report determined that homeowners also face more financial pressure from rising property taxes and high insurance premiums, up 57% since 2019. Meanwhile, property taxes have risen by an average of 12% since 2021.
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The Source: Information for this story was provided by Realtor.com and the State of the Nation’s Housing report from the Joint Center for Housing Studies (JCHS) of Harvard University. This story was reported from Washington, D.C.