Earning $74,000 a year doesn’t seem like a bad deal at all. It’s roughly $12,000 higher than the national average salary in the U.S. and, in many major cities, enough to cover $1,800 in monthly rent.
That figure — $74,000 — is also considered the “perfect salary” by Americans, according to a new Talker Research survey of more than 2,000 adults. On average, respondents said that was the amount they would need to feel financially happy. At the same time, about half admitted that what they currently earn isn’t sufficient to maintain their lifestyle, and that problem extends far beyond just housing costs.
The survey highlights a reality check: while $74,000 may feel like a comfortable income, it doesn’t stretch far enough to purchase a home in most parts of the country. Data from Realtor.com shows that only in West Virginia and Louisiana could someone buy a house on that income alone. Even doubling it to $148,000 still wouldn’t make homeownership possible in every state. “Earning the ‘perfect salary’ may still fall short of affording a median-priced home in most states,” explained Hannah Jones, senior economic research analyst at Realtor.com.
Today, the median cost of a new home in the U.S. is more than $410,000, while an existing home averages $422,000, according to figures from the U.S. Census Bureau and the National Association of Realtors. In expensive states such as California, Hawaii, Massachusetts, Colorado, and Washington, median home prices top $600,000 — making affordability even more elusive.
Take the $422,000 home price example. With a 20% down payment and a 6.5% mortgage rate, monthly payments hover around $2,500. That exceeds one-third of a gross monthly salary — a level most financial advisors caution against. Experts consistently warn that spending more than a third of your income on housing is financially risky. By contrast, with a $148,000 annual salary, the $2,500 mortgage would be far more manageable, assuming the buyer can come up with the down payment and actually find a house in that median range.
The bigger challenge, however, remains the home prices themselves. “It’s really the home prices that are the bigger hurdle,” Michelle Griffith, a luxury real-estate broker with Douglas Elliman in New York City, told Fortune. “Even if mortgage rates dropped to zero, the reality is that buying into the market … still requires a significant amount of cash upfront. Inventory is tight, and competition is high, so the cost of the property itself is what keeps most buyers on the sidelines.”
Mortgage rates also add to the problem. Many prospective buyers still remember the sub-3% rates available during the pandemic and now find today’s mid-6% rates discouraging. That’s why a large number of current homeowners are refusing to sell, choosing instead to keep their low existing rates. As Berkshire Hathaway HomeServices explained, “Many homeowners are reluctant [to] put their homes on the market and give up the low mortgage rates they already have. To them, high price gains won’t mitigate their ability to pay more for another home at significantly higher interest rates.”
This gridlock is shaping the supply and demand balance. Torsten Sløk, chief economist at Apollo Global Management, noted that supply isn’t moving much because owners are unwilling to sell, while demand is easing due to high prices and borrowing costs. “The bottom line is that there is downward pressure on home prices coming from falling demand and rising supply,” Sløk wrote.
There are some signs of relief, however modest. Mortgage rates have edged slightly downward over the past few months, while home-price growth has slowed or even leveled off in some markets. As Mark Fleming, chief economist at First American, explained: “Improving housing affordability will take time, likely years, [but] the balance of power is no longer as one-sided as it was during the pandemic frenzy. For those prospective buyers who have been waiting on the sidelines, the housing market is finally starting to listen.”
