A $100k Salary No Longer Buys the Typical Home
Earning $100,000 is a career milestone event for many middle-class Americans. It signifies a certain level of comfort; until very recently, it was a salary level that could support the purchase of a median-priced home without condemning the buyer to a strict diet of ramen noodles.
Between 2015 and 2021, earning six figures meant you could afford a home of roughly $450,000 to $500,000, about 1.5x the median home price.
In the third quarter of 2024, the median priced home cost $420,400 according to the Federal Reserve Bank of St. Louis. On a salary of $100,000, you might be able to afford a maximum monthly payment of $3,000. With interest rates once again near 7%, that might buy you a home of about $363,000 – or 86% of a median-priced home.
After the second quarter of 2022, the double-whammy of rising home prices and rising interest rates quickly put the median-priced home out of reach even for this income group. Affordability nosedived for the $100k club.
Considering that only 37% of adults have an income of $100,000 or more, according to data from the Federal Reserve Board, it’s clear that affordability is an increasingly important concern regardless of income level. The brief drop in rates we saw in September was a welcome, if short-lived, respite; Zillow economists noted that affordability reached a 19-month high in September. However, we just as quickly lost progress in October, leaving many people wondering, what now? When will a good salary be enough to buy a house?
We talked to a few experts to find out.
Incomes Are Rising, But Not As Fast As House Payments
The good news: the average American salary is increasing. According to the Social Security Administration, the national average wage index for 2023 was up 4.43% compared to 2022. Real average hourly earnings (accounting for inflation) increased 1.5 percent from September 2023 to September 2024, according to the Bureau of Labor Statistics.
However, the typical homebuyer’s salary is increasing, too. But that’s not a good thing because it indicates that buying a home is more and more an activity for high income earners only.
According to National Association of Realtors data, typical buyer incomes reached an all-time high of $108,800 in 2023. Even first-time buyers have a typical income of $97,000, and they’re grabbing just the first rung on the property ladder.
“There was a time in my career where $100,000 – I would just assume that if that was your household income, you're buying the biggest house on the block,” said Mark Anderson, a senior loan officer based in Chesterfield, Missouri.
Now six figures is just table stakes.
Payment Shock
“One thing I wish people understood is we're really not qualifying you for a home price. We’re qualifying you for a payment,” said Samantha Jackson, a 20-year mortgage loan officer based in central Texas. She was speaking about today’s one-two punch of rising rates and rising debt.
“We can extrapolate what home price that would equate to, but it's really about the payments. And there's a lot of payment shock right now,” she said, pointing to recent years with sub-four interest rates.
“It's very hard to comprehend that four years ago, a $2,000 payment would get you a $400,000 house. And now, a $2,000 payment is more like a $200,000 house,” she said.
Debt Levels Are Destroying Buying Power, So Keep Your Debt Low
Homebuyers understand that as rates and prices rise, mortgage payments do, too. But what they may not realize is that the variety of lifestyle accommodations that a $100,000 salary brings – car payments, student loan payments, credit card payments – can seriously affect the kind of home they can buy. They raise debt-to-income ratios to levels that make it difficult to qualify for the size of payments they need for a median-priced home.
“Credit card debt is again at an all-time high. Consumer debt is at an all-time high. And we're finding that more of the average consumer's income is being eaten up by consumer debt, leaving less room for their home,” Jackson said.
Anderson, the Missouri-based loan officer, explains that debt is one of the biggest problems for people making $100,000.
“A lot of it boils down to what they're bringing to the table,” he said of their buying power. “Not only on the income side, but on the debt side,” he said. He illustrated this with an example.
“If you've got a person making $8,333 a month, if that person has no debt payments of any kind – no car payment, no student loan payment, no credit card debt that carries over with payments, no debt at all – I can get them approved, typically, for a mortgage payment of as high as maybe $3,750 a month, which in our market translates into a pretty big honking house,” Anderson said.
But that’s not what’s happening.
“Just from what I have observed,” Anderson said, “the amount of debt payments that people have right now have been squeezing them in a whole other way.”
All of a sudden, he said, you've got folks with $1,000 car payments. They have $300 or $400 a month in student loan payments. They've got credit card balances that they can't pay off every month; maybe there's another $400 in minimum payments on credit cards. “I would argue that that's a relatively modest example of the kind of debt that people have,” he said. “They're at $1,800 a month at that point, with debt payments.”
Now, instead of qualifying for a mortgage payment of $3,750, a six-figure earner is qualifying for $1,950. That buys a much different kind of house – especially at rates above 7%.
“You're probably, at that point, talking about a house price of about $200,000,” he said. “If you don’t have any debt and you make that same level of income, you're probably talking more like $450,000.”
Will Things Get Better in 2025 for $100k Earners?
So will things get better? Or are buyers stuck earning a good salary but unable to afford a home?
Skylar Olsen, chief economist at Zillow, sees opportunities on the horizon. In an emailed release, she writes, “Inventory is still slowly building back up and price cuts are still relatively common — persistent buyers may be able to find a deal or negotiate for worthwhile concessions.”
At the same time, Fannie Mae’s Economic Strategy and Research (ESR) team forecasts increasing affordability for 2025 and 2026, projecting a 17% increase in home sales in 2026 after downshifting its expectations for volume in 2025. But it also predicts mortgage rates will remain above 6% next year, revising its previous forecast for a dip early in the new year. Unfortunately for anyone who needs to buy things, it’s also predicting core inflation to remain elevated in the near term.
On the other hand, at least salaries are also projected to increase, according to the Society for Human Research Management, which has set its expectations at 3.5% income growth for 2025.
But it all depends on the economy’s performance as a whole – and the government’s reaction to it.
“When this Fed bond-buying program goes away, we're going to see a snap-back that violates the pendulum laws of physics,” Anderson said. “We've swung so far in this direction, it's going to swing way further in the other direction,” he said.
How to Do More with Less
If you earn six figures, you can’t control whether rates rise or the bond market slips.
But you can control your own finances.
“Your ability to buy a home – and buy a home comfortably – has much more to do with your own personal household economy than it does anything going on in the market,” Anderson said.
According to a Q3 2024 Realtor.com survey, 41% of homebuyers delaying a purchase pointed to personal finances as a reason to delay. But the flip side of that coin is that homebuyers can boost their personal economy, too. Here are a few things buyers can do to improve their finances and increase their purchasing power.
Double Down on Debt Payoff
“Mission one is to resolve your debt problem in any way that you can,” Anderson said. That could mean selling or trading any depreciating assets you’re making payments on, like a boat; you could also put vacation on hiatus while you work on paying off credit cards. If you’re car shopping, look for lower-priced models, take advantage of interest-rate incentives, or pay cash for used vehicles. Get aggressive on personal loan repayment, and consider whether refinancing a student loan is the right move.
Focus on debts with the smallest balances and largest payments. Remember that it’s not the amount of debt you have, but the payment on it, that affects homebuying power.
Look for Creative Ways to Boost Your Income
At some point, from an affordability standpoint, the only way out of this is to earn more,” said Anthony Grosso, a senior mortgage loan officer and mortgage coach licensed in Florida, New York, New Jersey, and Pennsylvania.
“You can only cut so much, right? There's nothing more to cut. You just have to work on the income side of it,” he said. Whether you’re picking up extra shifts at work, adding a weekend side hustle, or jostling for a promotion, improving what you earn will help balance the income side of the debt-to-income equation.
Just remember that a self-employed side gig or second job will help raise cash, but won’t help you qualify. You have to have two years’ history of making that extra income to use it on a mortgage application.
Supersize your Savings
When it comes to optimizing your rate, the more you can put down, the better. A bigger down payment can help lower your rate, giving you a lower monthly payment, and the lower your payment, the more house you can afford to buy.
“Down payment is playing more of a factor recently than credit,” Grosso said. “The more you put down, the better your rate options are. So you can if you put 40% down, that's like, everything. If you can get 40% down, you can have a 700 credit and have the same rate as someone with a 780, because the bank is looking at it from a risk standpoint,” he said.
You also avoid expensive private mortgage insurance if you put at least 20% down. Without this extra cost, you can afford more home.
Entertain All Options
Ask your loan officer or mortgage broker about more than just conventional loans. It may be time to get a little creative.
FHA loans, for example, may be a solid option not only for people with lower credit, but also for those with high debt-to-income ratios.
“FHA will allow you to qualify, believe it or not, all the way upwards of maybe 57% in terms of their back-end debt-to-income ratio,” Anderson said. In other words, you might qualify even if well over half your gross income each month is required for the house payment and all debt payments.
Another option to consider is down payment assistance. You may consider a $100,000 income to be immediately out of the running for government homebuying programs, but don’t rule them out without checking. The Missouri Housing Development Commission, for example, offers lower interest rates and a forgivable loan of 4% of the mortgage amount to help with down payment and closing costs. Depending on location and family size, income limits go as high as $144,480 for this program. New York’s homebuyer assistance program is available for families with household incomes over $100,000, as is Ohio’s, California’s, and Texas’s, to name a few.
“People have a lot of power to control their destiny as it relates to homeownership. Times right now are obviously not ideal, but if people can focus on optimizing their own personal finances, they're going to give themselves the best possible shot,” Anderson said.
