In Los Angeles, the dream of owning a home is becoming increasingly distant for many Americans. Skyrocketing mortgage rates combined with surging property prices are severely restricting what potential buyers can feasibly afford. Currently, to purchase a home priced at the national median of $431,250, a buyer would need an annual income of at least $114,000, as per recent data from Realtor.com.
This calculation assumes a 20% down payment, financing through a 30-year fixed-rate mortgage, and housing expenses not exceeding 30% of the buyer’s gross monthly income — a standard measure of housing affordability. Compared to six years ago, buyers now need to earn an additional $47,000 yearly to afford a median-priced home. During that time, the median listing price stood at $314,950, with the average mortgage rate around 4.1%. In contrast, this week, the average mortgage rate is at 6.76%.
The necessity for a six-figure income to afford such a home emerged in May 2022 and has remained high. Meanwhile, according to the U.S. Census Bureau, the median household income in 2023 was approximately $80,600. In many major metropolitan areas, such as San Francisco, Los Angeles, New York, and Boston, the required annual income to buy a median-priced home exceeds $200,000. In San Jose, it tops $370,000.
The pandemic era saw extremely low mortgage rates, which invigorated the housing market, igniting bidding wars that often led to home sales significantly higher than the asking prices. From 2019 to 2024, U.S. home prices surged by more than 50%. However, since mortgage rates began their upward march in 2022, the U.S. housing market has experienced a downturn, with sales of occupied homes plummeting to a nearly 30-year low last year. March witnessed the largest monthly sales decline since November 2022.
There is still a glimmer of hope for prospective buyers. Home prices are increasing at a slower rate than during the pandemic-driven market boom. The national median sales price of occupied homes in March increased by 2.7% year-over-year to $403,700, marking an all-time high for March but the minimal annual rise since August. In April, home prices inched up just 0.3% compared to the previous year, based on Realtor.com data.
Buyers who can manage the current mortgage rates enjoy a more extensive array of available properties compared to a year ago. Active listings — all homes on the market except those under contract — rose by 30.6% last month year-on-year, Realtor.com reports. Listings in areas like San Diego, San Jose, and Washington D.C. have increased by between 67.6% and 70.1%.
As the time taken to sell properties increases, a growing number of sellers are lowering their asking prices. Last month, around 18% of listings saw price reductions.
Danielle Hale, Realtor.com’s chief economist, notes, “Sellers are becoming more flexible on pricing, underscored by the price reductions we’re seeing, and while higher mortgage rates are certainly weighing on demand, the silver lining is that the market is starting to rebalance. This could create opportunities for buyers who are prepared.”