A recent survey reveals some startling information regarding the affordability of homes in the United States. According to St. Louis-based real estate company Clever Real Estate, a median home is unaffordable for the average American household in 44 of the 50 largest United States metro areas and 46 of the 50 states.
Right now, the cost of a median-priced home in the U.S. averages $332,494. To be able to afford that, first-time buyers would need an income of almost $120,000 after a 10% down payment. That is $45,000 more than the typical American household annual income of $74,755.
The last year the average buyer put down 20% on the purchase of a house was in 1989, according to the National Association of Realtors. But even with a down payment of 20%, buyers need an average household income of $98,202 to be able to afford that same median-priced house.
Priced Out of the American Dream
The industry standard 28/36 rule of housing affordability shows a household should not spend more than 28% of its gross monthly income on shelter, with an additional 8% allocated for other debts.
An American family with a median household income of under $75K and 10% saved can only afford a home that costs $207,529 — 38% less than the current average home price.
“Homes have become less affordable because home price appreciation has so far outpaced wage growth,” says Bankrate analyst Jeff Ostrowski.
Clever notes that the average household in Tampa, Florida, earns $69,290 annually. Median home prices run around $361,177.
With a 20% down payment, the estimated monthly mortgage payment would be $2,476, including taxes and insurance. A household would need to earn $106,116 to afford that mortgage payment without exceeding the 28/36 rule, a difference of almost $37,000.
“Why have home prices gone up so quickly? Blame supply and demand…over the past few years, the supply of homes has been constrained by a number of factors, including muted homebuilding and the lock-in effect,” Ostrowski explains. “But demand for homes has been growing, and there are more buyers than sellers.”
These high costs price 61% of Americans out of the U.S. housing market, even with a 20% down payment.
Only four states qualify as affordable; West Virginia, Ohio, Iowa, and Indiana are the sole states where median homes are affordable to median earners.
Out of the 50 largest U.S. metro areas, just six had home prices that were low enough to be considered “affordable” to the average income household — Pittsburgh, Cleveland, St. Louis, Memphis, Indianapolis, and Birmingham.
Los Angeles took the crown for the least affordable city in the U.S. Median household income is $87,743, meaning home buyers must make nearly three times that to afford a $900,000 mortgage on a median-priced home.
Lawsuit Changing Real Estate Commissions
Another recent development that impacts real estate commissions could also directly impact home buyers, especially first-time buyers.
In November 2024, a federal jury in Missouri found the National Association of Realtors and two other brokerages liable for $1.8 billion in damages in a conspiracy to artificially raise real estate agents’ commissions.
Under antitrust law, the defendants could have faced a triple penalty that put them on the hook for $5.4 billion in damages. They later settled for $418 million and various rule changes.
The lawsuit changes the way real estate agents receive commissions.
Traditionally, the seller paid 6% of the commission to real estate agents — 3% would go to the buyer’s agent, and 3% would go to the seller’s agent. As a result of the lawsuit, the sellers are no longer responsible for paying the buyer’s agent commissions; that burden now falls on the buyer. In addition to the cash needed for a down payment, buyers must also pay the buyer’s agent’s commission.
Starting in August 2024, if a first-time buyer is trying to save for a median-priced home at $332,494, they not only have to come up with the 10% down payment of $33,250 but also need another $10,000 to cover their real estate agent’s 3% commission.
Under the new system, the listing agent will no longer specify how much commission goes to the buyer’s agent when listing a home. Instead, the buyer and buyer’s agent will negotiate, which could potentially be a silver lining.
Stephen Brobeck, senior fellow at the Consumer Federation of America, believes this change could drop commissions from 6% to 4% or even 3%. “Over time, more agents will feel free to offer different types of compensation, and more consumers will comparison shop and negotiate commissions in a more transparent marketplace,” he says.
Buyers who negotiate properly could avoid paying commissions altogether.
When sellers accept a buyer’s offer, it goes under “contract.” During this time, the seller and buyer can negotiate to lower the selling price or give cash back to the buyer. This happens for various reasons: some buyers ask the seller to cover the closing costs of their loan, and if issues arise during home inspections, buyers typically ask the sellers to cover those costs.
Sellers often comply rather than end the contract and list the house again. Most sellers also understand that much of the buyer’s savings is for the down payment, while sellers typically walk away with a nice bag of cash from the sale. A savvy buyer could still potentially negotiate with the seller to have them cover the commissions of the buyer’s agent.
