If mortgage rates were 0%, median wages qualify buyers in just 12 states

It s hard to fathom just how unaffordable the homeownership dream has become Industry buzz suggesting that a subtle dip in mortgage rates could make a noteworthy difference for homebuyers is somewhat misleading Let me offer what I ll admit is an absurd example Think of -year mortgages with no interest Yes My trusty spreadsheet identified that under this homebuyer s ultimate dream scenario the median wage requirement met rough qualification standards in just states West Virginia Iowa Ohio Oklahoma Michigan Louisiana Kansas Kentucky Illinois Indiana Mississippi and North Dakota That s how crazy high home prices have become Consider my house-financing assumptions for buyers The median-priced home using average values from Zillow and Redfin and the median statewide income according to federal pay statistics Remember the median is the midpoint of a details set where half is higher and half is lower It s a statistical tool to measure what s typical This hypothetical buyer is financing of the purchase price And to be somewhat realistic this homebuying calculation includes annual payments of property taxes and insurance estimated at of the home s value Those monthly costs could be no more than of income for a qualified buyer Not so Golden State California s median-priced home gets a typical buyer a monthly payment with a mortgage Don t forget the down payment Yes payments are that high even with a zero-percent loan Remember you still need to repay the loan s principal California s payment is the second-highest among the states Worse months of those payments equal of the -a-year median wage nowhere near the threshold California isn t alone Median wages in other states also won t qualify under this standard Bigger paychecks Now let s step up the pay ladder to the th percentile That s the mid-point of the upper half of wages That s usually workers in high-skill good-paying industries or top performers in lower-wage sectors That kind of pay should get you a home no Those wages meet the standard in states and California is not among them California s projected house payments for the median-priced home still eat up of the income at the th percentile So who d qualify in California at rates Jump up the wage scale to the th percentile and California s wage at these top-shelf positions translates to of pay going toward the state s median house payment Note that these th percentile paychecks are often tied to superstar workers or top executives with compensation that is exceeded by only of all paychecks Only Hawaii s wages don t qualify at this pay grade Two incomes Contemplate this dreamy affordability yardstick through the lens of a common house-hunting characteristic a two-income household If those two paychecks are at the median wage with mortgages this combination fails to meet the maximum in just three places Yup including California Yes two median-wage earners in the Golden State that s pay totaling would see house payments eat up of their income at Ouch Another dream Imagine a slightly more reasonable dreamy scenario Mortgage rates returning to their historic low of set on the week ending Jan according to Freddie Mac Of class to achieve a rate again we must recall that the period included massive economic upheaval tied to pandemic lockdowns So be careful what you wish for Even mortgages couldn t get the median wage under the qualifying payment-to-income threshold at current prices California payments would be of the median wage Wages at the middle-of-the-top-half the th percentile are less than of s house payments in only states and not California It requires superstar pay the th percentile to have wages below of payments in states Of class not in California To qualify at Golden State house hunters need a pair of jobs paying wages at the th percentile Reality checks Forget these financing fantasies The harsh reality is that mortgage rates in September are roughly Lofty pricing and rates mean California house hunters by my math need a pair of th percentile superstar wages so that house-payment checks don t gobble up more than of income That s a year It s not just the Golden State At rates no state s median wage is under of house payments Just two states qualify at the th percentile Go to the th percentile wage and paychecks in just states are under the maximum And two house hunters each earning a th percentile wage qualify nowadays in only states The price is wrong If it s not cheap money improving affordability what size price cuts would work magic in in contemporary times s mortgage world Imagine a California house hunter earning the median wage trying to buy the median-priced home I know an unrealistic goal but let s follow the math To have payments at just of this income level California home prices would have to fall For the house shopper earning California s th percentile wage a price fall of is required And the superstar worker at the th percentile wage still necessities a drop Now ponder house-hunting duos A pair of median-wage paychecks only works if California prices dip What about two th percentile wages A price cut makes for qualification Price declines must be part of any substantial affordability cure Jonathan Lansner is the business columnist for the Southern California News Group He can be reached at jlansner scng com Related Articles As a Bay Area real estate mogul stands accused of fraud his favored lender comes under scrutiny Is it better to rent or own in California That depends A bold vision for overhauling a dilapidated mall divides Bay Area city Bay Area homebuyers preparing to swoop into the arena as mortgage rates dip East San Jose project lands historic grant from the Knight Foundation Related Articles Median house price in Marin County hovers at million Is it better to rent or own in California That depends A bold vision for overhauling a dilapidated mall divides Bay Area city Bay Area homebuyers preparing to swoop into the realm as mortgage rates dip Californians pay ninth-highest HOA fees in US