If you’ve considered buying a home in the past couple of years, you know the real estate market is record-breakingly tumultuous. Unfortunately, for many first-time prospective homeowners, buying a home is more challenging than ever due to skyrocketing interest rates and inflated down payments.
To help you understand how unaffordable housing has become, we’ve compiled this study on average U.S. home prices and the salaries needed to afford them. We’ll analyze state-by-state housing and salary information to help you find out if you’re one of the many Americans being priced out of the housing market. Then, we’ll cover how much money you’d need to make to afford a home in your state.
Key Findings
70% of Americans cannot currently afford to buy a home in their state.
In 48 out of 50 states, Americans spend more than ⅓ of their monthly income on housing.
The average American spends 52% of their income on their mortgage.
Only two states – Alabama and Wisconsin – adhere to the 28% rule for debt-to-income ratio.
The highest nationwide minimum wage of $16.10 still isn’t enough to afford a home on a regular 40-hour work week schedule.
Americans Spend a Huge Portion of Their Incomes on Housing
You may have heard of the 28% guideline for mortgages. This real estate rule of thumb says that your monthly mortgage payment shouldn’t exceed 28% of your pre-tax monthly income. Many fear that this rule is outdated, considering the effect of inflation rates on housing prices.
96% of States Require More Than 28% of an Individual’s Average Income To Be Spent on Housing
According to our data, only two states – Alabama and Wisconsin – have mortgage rates that adhere to the 28% principle. Wisconsin homeowners typically spend around 23% of their income on monthly house payments. Alabamans barely make the cut, spending 27% on their mortgages.
The other 48 states exceed the percentage, with a national average of 52% of income spent on housing. Hawaiians spend the most on housing, with a whopping 139% of their income going toward house payments. Many homeowners in states like Hawaii opt for multifamily units instead of single-family homes in order to afford such expensive monthly payments.
State | Average Salary | Average Home Price | Average Monthly Mortgage | Percentage of Income spent on Housing |
|---|---|---|---|---|
Alabama | $52,138.00 | $206,757.00 | $1,181.00 | 27% |
Alaska | $67,010.00 | $342,399.00 | $2,358.00 | 45% |
Arizona | $58,462.00 | $456,565.00 | $3,109.00 | 68% |
Arkansas | $48,882.00 | $179,421.00 | $1,299.00 | 34% |
California | $65,895.00 | $805,960.00 | $5,339.00 | 94% |
Colorado | $70,952.00 | $599,813.00 | $4,001.00 | 76% |
Connecticut | $72,497.00 | $384,313.00 | $2,634.00 | 48% |
Delaware | $65,072.00 | $356,611.00 | $2,451.00 | 49% |
District of Columbia | $74,266.00 | $816,273.00 | $5,406.00 | 66% |
Florida | $55,681.00 | $421,280.00 | $2,877.00 | 66% |
Georgia | $55,600.00 | $321,083.00 | $2,218.00 | 49% |
Hawaii | $75,797.00 | $1,046,325.00 | $6,901.00 | 139% |
Idaho | $54,942.00 | $473,324.00 | $3,219.00 | 81% |
Illinois | $61,456.00 | $270,856.00 | $1,887.00 | 38% |
Indiana | $54,785.00 | $222,397.00 | $1,585.00 | 38% |
Iowa | $54,155.00 | $193,869.00 | $1,395.00 | 33% |
Kansas | $55,069.00 | $207,869.00 | $1,488.00 | 36% |
Kentucky | $51,978.00 | $199,162.00 | $1,430.00 | 36% |
Louisiana | $49,719.00 | $216,272.00 | $1,544.00 | 39% |
Maine | $57,955.00 | $363,536.00 | $2,497.00 | 56% |
Maryland | $75,214.00 | $416,753.00 | $2,847.00 | 52% |
Massachusetts | $75,077.00 | $611,046.00 | $4,074.00 | 67% |
Michigan | $56,343.00 | $234,635.00 | $1,649.00 | 36% |
Minnesota | $65,514.00 | $339,547.00 | $2,339.00 | 46% |
Mississippi | $47,446.00 | $165,771.00 | $1,208.00 | 34% |
Missouri | $53,547.00 | $232,333.00 | $1,634.00 | 38% |
Montana | $57,448.00 | $454,284.00 | $3,094.00 | 75% |
Nebraska | $53,892.00 | $240,647.00 | $1,688.00 | 39% |
Nevada | $56,949.00 | $483,251.00 | $3,285.00 | 77% |
New Hampshire | $75,432.00 | $453,668.00 | $3,090.00 | 63% |
New Jersey | $75,321.00 | $483,807.00 | $3,288.00 | 59% |
New Mexico | $49,757.00 | $298,236.00 | $2,067.00 | 48% |
New York | $63,548.00 | $378,350.00 | $2,594.00 | 44% |
North Carolina | $53,687.00 | $324,767.00 | $2,242.00 | 51% |
North Dakota | $58,318.00 | $283,835.00 | $1,973.00 | 44% |
Ohio | $54,877.00 | $214,527.00 | $1,532.00 | 35% |
Oklahoma | $51,435.00 | $183,558.00 | $1,326.00 | 33% |
Oregon | $64,975.00 | $531,707.00 | $3,558.00 | 72% |
Pennsylvania | $60,640.00 | $268,555.00 | $1,872.00 | 40% |
Rhode Island | $67,541.00 | $445,967.00 | $3,039.00 | 59% |
South Carolina | $52,348.00 | $297,357.00 | $2,061.00 | 52% |
South Dakota | $54,821.00 | $295,681.00 | $2,050.00 | 53% |
Tennessee | $53,188.00 | $301,858.00 | $2,091.00 | 51% |
Texas | $55,441.00 | $316,651.00 | $2,188.00 | 48% |
Utah | $70,425.00 | $584,775.00 | $2,526.00 | 57% |
Vermont | $58,728.00 | $362,013.00 | $3,903.00 | 84% |
Virginia | $67,918.00 | $381,825.00 | $2,487.00 | 48% |
Washington | $74,398.00 | $637,185.00 | $2,617.00 | 46% |
West Virginia | $53,244.00 | $139,095.00 | $1,113.00 | 29% |
Wisconsin | $57,934.00 | $267,826.00 | $1,031.00 | 23% |
Wyoming | $60,510.00 | $323,224.00 | $1,867.00 | 43% |
The bottom line is that the average American’s salary isn’t enough to keep up with sky-high inflation.
Our findings show that the average annual income needed to buy a home is $107,139. This number compares to an annual income of $60,357. As you can see, there’s a major discrepancy between the income necessary to buy the “average” home and what Americans are actually making. For example, the average North Carolinian makes $53,687 per year but would really need a salary of $96,086 to afford a home in their state.
The average monthly mortgage in the U.S. currently sits at around $2,431. To adhere to the 28% rule for this amount, you’d need an annual salary of at least $104,000 – i.e., a monthly salary of $8,683 monthly salary. At this time, the average American only makes around $5,030 per month.
For the first time, renting is a more affordable option for first-time homebuyers. A report from the National Association of REALTORS® states that renting is cheaper than buying a starter home in 75% of America’s largest metros. Despite rental prices reaching new highs, they’re still less expensive than mortgage payments. In this sense, the “hot” housing market is preventing a large portion of the U.S. population from building wealth.
Prospective homebuyers must either cut corners to buy homes far over their budgets or continue renting and putting monthly payments toward properties they’ll never own.
Current Wages Aren’t Cutting It
Consider this example from our recent wage vs. mortgage study:
A homeowner making over minimum wage – say $22 per hour – would still need to work 110 hours per month to afford the average national monthly mortgage of $2,431. One hundred and ten hours is about three 40-hour work weeks. This means the average homeowner works three weeks of every month just to afford their mortgage payment. The rest of their monthly salary – just $880 before taxes – is what they have left over for other expenses like groceries, gas, car payments, childcare, leisure, etc.
Now imagine how these numbers would play out for a person making minimum wage.
The minimum wage is the lowest amount an employer can legally pay an employee per hour. Minimum wages vary by state, ranging from $7.25 to $16.10 nationwide. No state’s minimum wage is currently high enough for workers to afford a home on a standard 40-hour work week. Even Arkansas, the state with the fewest number of hours needed, would require minimum wage employees to work 97-hour work weeks just to afford their monthly mortgage payments.
The data below represents how many hours you’d need to work to afford the average home in each state.
State | Minimum Wage by State | Annual Salary Needed to Afford the Average Home | Average Home Price | Average Monthly Mortgage | Weekly Working Hours Needed to Afford the Average Home on Minimum Wage |
|---|---|---|---|---|---|
Alabama | $7.25 | $63,471.43 | $206,757.00 | $1,181.00 | 168.36 |
Alaska | $10.34 | $101,057.14 | $342,399.00 | $2,358.00 | 187.95 |
Arizona | $12.80 | $133,242.86 | $456,565.00 | $3,109.00 | 200.18 |
Arkansas | $11.00 | $55,671.43 | $179,421.00 | $1,299.00 | 97.33 |
California | $15.00 | $228,814.29 | $805,960.00 | $5,339.00 | 293.35 |
Colorado | $12.56 | $171,471.43 | $599,813.00 | $4,001.00 | 262.54 |
Connecticut | $14.00 | $112,885.71 | $384,313.00 | $2,634.00 | 155.06 |
Delaware | $10.50 | $105,042.86 | $356,611.00 | $2,451.00 | 192.39 |
District of Columbia | $16.10 | $231,685.71 | $816,273.00 | $5,406.00 | 276.74 |
Florida | $10.00 | $123,300.00 | $421,280.00 | $2,877.00 | 237.12 |
Georgia | $7.25 | $95,057.14 | $321,083.00 | $2,218.00 | 252.14 |
Hawaii | $12.00 | $295,757.14 | $1,046,325.00 | $6,901.00 | 473.97 |
Idaho | $7.25 | $137,957.14 | $473,324.00 | $3,219.00 | 365.93 |
Illinois | $12.00 | $80,871.43 | $270,856.00 | $1,887.00 | 129.6 |
Indiana | $7.25 | $67,928.57 | $222,397.00 | $1,585.00 | 180.18 |
Iowa | $7.25 | $59,785.71 | $193,869.00 | $1,395.00 | 158.58 |
Kansas | $7.25 | $63,771.43 | $207,869.00 | $1,488.00 | 169.15 |
Kentucky | $7.25 | $61,285.71 | $199,162.00 | $1,430.00 | 162.56 |
Louisiana | $7.25 | $66,171.43 | $216,272.00 | $1,544.00 | 175.52 |
Maine | $12.75 | $107,014.29 | $363,536.00 | $2,497.00 | 161.41 |
Maryland | $12.50 | $122,014.29 | $416,753.00 | $2,847.00 | 187.71 |
Massachusetts | $14.25 | $174,600.00 | $611,046.00 | $4,074.00 | 235.63 |
Michigan | $9.87 | $70,671.43 | $234,635.00 | $1,649.00 | 137.7 |
Minnesota | $10.33 | $100,242.86 | $339,547.00 | $2,339.00 | 186.62 |
Mississippi | $7.25 | $51,771.43 | $165,771.00 | $1,208.00 | 137.32 |
Missouri | $11.15 | $70,028.57 | $232,333.00 | $1,634.00 | 120.78 |
Montana | $9.20 | $132,600.00 | $454,284.00 | $3,094.00 | 277.17 |
Nebraska | $9.00 | $72,342.86 | $240,647.00 | $1,688.00 | 154.58 |
Nevada | $10.50 | $140,785.71 | $483,251.00 | $3,285.00 | 257.85 |
New Hampshire | $7.25 | $132,428.57 | $453,668.00 | $3,090.00 | 351.27 |
New Jersey | $13.00 | $140,914.29 | $483,807.00 | $3,288.00 | 208.45 |
New Mexico | $11.50 | $88,585.71 | $298,236.00 | $2,067.00 | 148.14 |
New York | $13.20 | $111,171.43 | $378,350.00 | $2,594.00 | 161.96 |
North Carolina | $7.25 | $96,085.71 | $324,767.00 | $2,242.00 | 254.87 |
North Dakota | $7.25 | $84,557.14 | $283,835.00 | $1,973.00 | 224.29 |
Ohio | $9.30 | $65,657.14 | $214,527.00 | $1,532.00 | 135.77 |
Oklahoma | $7.25 | $56,828.57 | $183,558.00 | $1,326.00 | 150.74 |
Oregon | $13.50 | $152,485.71 | $531,707.00 | $3,558.00 | 217.22 |
Pennsylvania | $7.25 | $80,228.57 | $268,555.00 | $1,872.00 | 212.81 |
Rhode Island | $12.25 | $130,242.86 | $445,967.00 | $3,039.00 | 204.46 |
South Carolina | $7.25 | $88,328.57 | $297,357.00 | $2,061.00 | 234.29 |
South Dakota | $9.95 | $87,857.14 | $295,681.00 | $2,050.00 | 169.81 |
Tennessee | $7.25 | $89,614.29 | $301,858.00 | $2,091.00 | 237.7 |
Texas | $7.25 | $93,771.43 | $316,651.00 | $2,188.00 | 248.73 |
Utah | $7.25 | $108,257.14 | $584,775.00 | $2,526.00 | 287.15 |
Vermont | $12.55 | $167,271.43 | $362,013.00 | $3,903.00 | 256.32 |
Virginia | $11.00 | $106,585.71 | $381,825.00 | $2,487.00 | 186.34 |
Washington | $14.49 | $112,157.14 | $637,185.00 | $2,617.00 | 148.85 |
West Virginia | $8.75 | $47,700.00 | $139,095.00 | $1,113.00 | 104.84 |
Wisconsin | $7.25 | $44,185.71 | $267,826.00 | $1,031.00 | 117.2 |
Wyoming | $7.25 | $80,014.29 | $323,224.00 | $1,867.00 | 212.24 |
The issue isn’t just that housing prices have risen to historical highs. The problem for low-income workers is that the federal minimum wage hasn’t risen to keep up with inflation rates.
According to the Center for Economic Policy and Research, the minimum wage would be approximately $23 per hour had it kept pace with rising national inflation and productivity rates. Instead, the federal minimum wage hasn’t been updated in over a decade, despite inflation being the highest it’s been in 40 years.
What Does This Mean for American Homebuyers?
Our data illustrates the financial challenge many Americans face each month.
The Americans who are priced out of the housing market must continue renting and, thus, put a large percentage of their salaries toward housing that won’t build their wealth. Even those who can afford a home are paying exorbitant interest rates, which means more of their money is going to the lender than toward actually paying off their new home.
If interest rates continue to rise, this discrepancy will become even worse for those looking to buy. Forbes projects that the current 30-year fixed mortgage rate of 6.85% could shift up toward 8% in the remainder of 2022.
Higher interest rates generally drive down the demand for housing which ultimately lowers home prices across the market. What we’re seeing now is a rise in interest rates, coupled with a rise in prices and demand, leading to low affordability and an extremely volatile housing market.
Potential homebuyers can either:
- Sit tight and continue renting in hopes the housing market settles down soon.
- Take the plunge into a turbulent market and plan to refinance if interest rates decrease down the road.
In the event the market doesn’t cool off soon, those who choose to wait may face higher interest rates and housing prices down the road. On the other hand, these people may save a little money each month by choosing to rent.
Those who bite the bullet and purchase a home will secure current interest rates before they have the chance to rise. However, they’ll be taking out a huge loan with mortgage rates that will inevitably stress monthly finances.
Methodology
For this report, we looked at the mean hourly wage in each state and the top 50 metropolitan areas as recorded by the Bureau of Labor Statistics. We then used Zillow.com to determine the typical home listing price and calculate the average mortgage payment in each location. We factored in the national average mortgage interest rate, included the average down payment of 6%, and used a typical 30-year term loan. We compared the mean salary with the average monthly payment to determine the percentage of income needed to pay the average mortgage. Then, we compared the percent of income to the 28% rule.
