A recent Redfin report highlights the income gap between the average homeowner and renter, emphasizing that home affordability is out of reach for many Americans. The data found that homeowners needed to earn a little over $50,000 more than renters, which comes to a difference of 81.8%.
Breaking this down even further, to make ends meet when it comes to affording a median-priced house that’s on the market, about $116,633 a year is needed. In contrast, making a living of $64,160 is necessary if renting a typical apartment. The graph below presents a good visual when it comes to the required income difference and makes it obvious that the gap between the two is large enough to sway Americans away from homeownership.
The Gap Between Homeowner vs Renter Required Earnings Has Been Widening
The earnings needed to be able to afford a house are up 5% year over year. In fact, last year’s readings came in lower, with $110,808 being the magic number for homeownership and $64,000 for renters. Only a few years back, though, in 2021, the earning requirements were drastically different, with a $63,925 yearly income needed to afford a home and $54,520 to rent, a gap of only 17.3%.
Related Article: Renting More Affordable Than Buying Indicating Financial Security for Investors
In some locations, the current income gap for shelter is much larger, making home affordability almost impossible for the average worker. Take San Jose, CA, for example, where a yearly income of $408,557 is needed to afford a home, which is 208% higher than what’s required to rent.
Redfin Senior Economist Elijah de la Campa comments on the difficulties of having such a wide gap in the earnings required for the two shelter types: “It has become increasingly challenging for American renters to make the shift to homeownership thanks to the triple whammy of rising home prices, high mortgage rates and a shortage of houses for sale.”
The Cost of Buying a Home is Rising Pushing Families into Rentals
It’s been difficult for families who have postponed settling into a home because they know property prices are rising faster than rent. The situation paints a clear picture of the roadblocks that are preventing families from living what they may consider the American Dream. The bottom line is that many feel that owning a home is simply out of reach financially. This is especially true when home prices escalated by 4.5% year over year to $423,892 this past February and have continued to rise at that speed.
Related Article: Investors Buy to Secure Equity as Home Prices Continue to Rise
Rapidly rising home prices, coupled with the fact that many Americans have an income of around $86,000, which is $30,000 below the required earnings that are needed to afford a house for sale, makes the situation appear to be hopeless for those looking to slip into a home soon.
Unpredictable Tariff Situation Causing Potential Buyers to Back Out
Making matters worse is the uncertain tariff possibilities looming within the U.S., which could bring about higher construction and home prices.
Desiree Bourgeois, a Redfin Premier agent in Detroit, gives an insider’s perspective on the situation: “Tariffs are coming up for the first time. I hosted an open house over the weekend, and some of the younger buyers were concerned about how they’re going to impact the housing market. They’re hearing the words tariffs and recession, and it’s making them nervous that if they buy now, the value of their home will decline, and they don’t know whether mortgage rates will go up or down. There’s a lot of uncertainty out there, with buyers trying to understand how their purchase would fit into their personal finances and the broader economic puzzle.”
Related Article: Pending Home Sales See Record Cancellation Rates as More People Turn to Rentals
Homeowner vs Tenant Income Requirement Gap Expected to Shrink as Rents Begin to Rise
Although the required income for homeowners vs renters is large, this gap is expected to get smaller as rents begin to go up. Elijah de la Campa adds, “The gap between what someone must earn to buy versus rent may shrink in the coming months, but only because rents are expected to rise as the number of new apartments hitting the market tapers off due to a construction slowdown.”
There had previously been a rental supply surge in many locations where too many apartments were built, and this forced landlords to offer discounts and lower rents to draw tenants in. However, new apartment builds have, for the most part, slowed down, and this has placed landlords back in a position where they can raise rents.
The Lack of Home Affordability Has Opened Up Opportunities for Investors
With home affordability funneling families into rental properties and rents set to rise, real estate investors are quickly jumping into the market. This approach enables them to purchase before home prices increase further as a result of tariffs, inflation, global conflicts, and other unpredictable economic factors.
If you’d like to shield your wealth and increase your profits by owning a cash flowing rental property, feel free to schedule a complimentary call with our team. We offer new construction rentals in lucrative housing markets and also place a tenant and property manager for you so rental income starts flowing in immediately. In the meantime, dive into the following video that provides more details on how Americans can’t afford to buy a home:
