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As the homebuying season unfolds, many are navigating the housing market in search of their next home. However, recent research indicates that prospective buyers will need a substantial income to secure a typical residence in the United States.
A study conducted by Bankrate reveals that in 30 states and the District of Columbia, a household income of nearly $117,000 is essential for purchasing a home. This figure represents a stark increase of 50% compared to five years ago, when the average income required was approximately $78,000.
The homebuying landscape has also shifted dramatically over the years. Today’s typical buyer is generally older, more affluent, and less likely to be a first-time homeowner.
Changing Demographics in Homebuying
Data from the National Association of Realtors (NAR) indicates that first-time buyers currently account for merely 24% of the market, a significant decrease from 32% the previous year, marking the lowest percentage since NAR began tracking this metric in 1981. The median age of first-time buyers has risen to 38, while repeat buyers have an even higher median age of 61, up from 58 last year. This trend highlights the growing hurdles that younger buyers face when attempting to enter the housing market.
Factors Behind the Surge in Income Requirements
The escalation in home prices has been ongoing for five years. A surge in demand for homes coincided with the record low interest rates that characterized the COVID-19 pandemic in 2020 and 2021, which led to a dramatic increase in prices.
However, the housing inventory did not correspondingly rise to meet this demand. Properties that became available often sold quickly, at times within a few days, and some buyers even purchased homes without conducting inspections or appraisals.
Despite some recent increases in listings, inventory remains insufficient compared to the number of interested buyers. As a result, sellers can command higher prices, confident that a competitive group of buyers is vying for their properties, even when homes linger longer on the market than before.
With home prices climbing, mortgage rates have also risen. Currently, the national average for a 30-year mortgage stands at 6.90%, up from 6.87% in December 2024 and significantly higher than 3.50% in January 2022. It appears that the extraordinarily low mortgage rates of the early pandemic years may not make a comeback, making it increasingly difficult for buyers to afford a home.
In January 2025, the median sale price of homes reached $419,200, while the federal minimum wage remains stagnant at $7.25 per hour—unchanged since 2009.
Income Requirements: A State-by-State Breakdown
Income levels play a crucial role in determining where prospective buyers might live. Although national trends can provide a general overview of the housing market, significant disparities exist among different regions.
The states with the highest income requirements, as per the Bankrate study, are:
- District of Columbia: $240,009
- Hawaii: $235,638
- California: $213,447
- Massachusetts: $174,392
- Colorado: $168,643
In contrast, states where lower incomes are necessary include:
- West Virginia: $64,179
- Iowa: $70,437
- Ohio: $71,080
- Mississippi: $72,072
- Indiana: $72,342
Utah experienced the most significant increase in home prices, with the median sale price rising from $433,546 (adjusted for inflation) in January 2020 to $605,400 in January 2025—an increase of 89.4%, or $151,956.
Is Homeownership Feasible in 2025?
Despite a slight uptick in housing inventory, purchasing a home in 2025 remains a daunting task. Market conditions can differ vastly across regions, with some areas experiencing price reductions while others see continued growth.
When considering homeownership, buyers should keep the following factors in mind:
1. Assess Affordability Beyond the Mortgage – It’s crucial to factor in not just the principal and interest on your mortgage but also property taxes, homeowners insurance, and sometimes private mortgage insurance (PMI). Even with a fixed interest rate, your costs may rise over time due to variations in taxes and insurance expenses. Therefore, it is wise to allow for flexibility in your budget.
2. Investigate Homebuying Assistance Programs – Many local and state programs exist to assist with down payments, closing costs, or favorable loan conditions. Take time to explore your options; these resources can differ significantly based on your location and could lead to substantial savings.
3. Compare Lenders and Insurance Options – It’s essential not to settle for the first lender you find. Shop around for mortgage rates and terms to ensure you get the best deal. Being prequalified or preapproved can bolster your position as a serious buyer in a competitive market. Similarly, don’t overlook the importance of finding the right homeowners insurance for your specific needs.
Conclusion
While purchasing a home in 2025 is not out of reach, it demands greater planning, flexibility, and determination than in previous years. The challenges posed by rising prices and escalating mortgage rates necessitate a strategic approach. However, with careful budgeting and awareness of available options, navigating the current housing market can still lead to successful homeownership.
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