Housing market squeeze: Income needed to buy typical U.S. home up 79% in 5 years

Want more housing market stories from Lance Lambert’s ResiClub in your inbox? Subscribe to the ResiClub newsletter.

Here’s the annual U.S. household income needed to finance the purchase of the typical valued U.S. home:

• January 2020: $51,646
• January 2021: $51,740
• January 2022: $62,669
• January 2023: $86,184
• January 2024: $92,006
• January 2025: $92,538

That’s a +79% shift in just 5 years.

Methodology: This Zillow calculation is conservative and assumes a 20% down payment and the homebuyer spends less than 30.0% of their monthly income on the total monthly payment. This is a financed purchase, of course. For typical home value, Zillow economists used the latest Zillow Home Value Index reading.

How did we get here?

During the Pandemic Housing Boom, housing demand surged rapidly amid ultra-low interest rates, stimulus, and the remote work boom. Federal Reserve researchers estimate “new construction would have had to increase by roughly 300% to absorb the pandemic-era surge in demand.” Unlike housing demand, housing supply isn’t as elastic and can’t quickly ramp up like that. As a result, the heightened pandemic-era demand drained the market of active inventory and sent national home prices soaring. The typical U.S. home value measured by the Zillow Home Value Index in January 2025 ($356,776) is still a staggering +44% greater than in January 2019 ($247,106).

That overheated home price growth, coupled with the ensuing mortgage rate shock, with the average 30-year fixed mortgage rate jumping up from under 3.0% to over 7.0%, has created the fastest-ever deterioration in housing affordability.

This affordability squeeze has been broad-based.

Below is what this analysis looked like in January 2020.

Below is what this analysis looked like for January 2025.

The problem, of course, is that incomes haven’t kept up.

While the annual U.S. household income needed to purchase a typical U.S. home has increased by +79% between January 2020 and January 2025, average weekly earnings of U.S. workers have risen by +25%, and overall U.S. consumer inflation has grown by +23% during the same period.

What’s the impact of this housing affordability deterioration?

The biggest immediate impact of this affordability deterioration is that across the country, existing home sales have been constrained since mortgage rates spiked in 2022. Some of that’s the result of suppressed housing demand, but a lot of it is due to the fact that many homeowners who’d like to sell their home and buy something else simply can’t afford to do so or don’t want to part with their lower monthly payment/mortgage rate.

All signs point to 2025 being another year of constrained existing home sales.

View the full article