What 8% mortgage rates mean for home affordability

The average 30-year fixed mortgage rate just hit 8% for the first time since 2000, putting housing financing costs at historically high levels.

Given high prices and high interest rates, homebuyers must earn $114,627 to afford a median-priced house in the U.S., according to a recent report by Redfin, a real estate firm, which analyzed median monthly mortgage payments in August 2023 and August 2022.

The firm considers a monthly mortgage payment to be affordable if the homebuyer spends no more than 30% of their income on housing. At the time of the analysis, the average 30-year fixed mortgage was 7.07%.

The median U.S. household income was $75,000 in 2022, Redfin found. While hourly wages in the U.S. grew 5% over the past year, according to the real estate firm, that has not outpaced rising housing costs.

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Those current market trends have left homeownership out of reach for many people, experts say.

“Housing affordability is incredibly difficult for potential homebuyers,” said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

In August 2020, the typical monthly mortgage payment was $1,581, based on an average interest rate of 2.94%, Redfin found. At the time, the typical house cost roughly $329,000, and homebuyers would have needed an annual income of $75,000 to afford it. 

However, those record-low levels were the result of “highly unusual events, like a pandemic and a nearly catastrophic financial crisis,” said Mark Hamrick, senior economic analyst at Bankrate.com.

Nowadays, the typical U.S. homebuyer’s monthly mortgage payment is $2,866, according to Redfin — an all-time high.

While…