For many households, income is up but home ownership is further out of reach

Despite the turmoil of the COVID-19 pandemic, income and savings for the median American household are in better shape today than before the pandemic. On average, American households received more money and spent less during the first two years of the pandemic. As a result, household savings reached record highs in 2021.

More money in their pockets meant more Americans could buy a home, at least early in the pandemic. The most recent Census data shows that homeownership rose to 67.9% in the second quarter of 2020. That was the highest rate since 2008.

Since then, house prices continued to rise and mortgage interest rates grew, as well. This can make the typical method of buying a home—monthly payments on a 30-year fixed-rate mortgage—more challenging even after taking rising incomes into account.

After all these changes, is it easier today for Americans to buy a home?

How much did incomes rise since the start of the pandemic?

Incomes were rising steadily before the pandemic, but those gains accelerated as the virus created waves in the economy. In the decade leading up to the pandemic, personal incomes grew by an average of 4.2%, according to data from the Bureau of Economic Analysis. But between 2019 and 2020, incomes rose by 5.7%. And between 2020 and 2021, they rose by 7.4%—the highest pace of income growth since 1989.

This increase wasn’t primarily due to workers taking home higher pay. Almost all of this additional income was from government transfers such as unemployment insurance and stimulus checks. Some of those payments did not occur throughout the year.

Pandemic challenges caused household spending to drop.

Even as incomes were rising, Americans were adjusting their spending habits: they bought more durable goods—such as kitchen appliances, cars, sports equipment, and furniture—and fewer services, including travel, entertainment, and dining out. Since most consumer spending goes to services, about 65% of all spending, the cuts to services spending outweighed the increased spending on goods. Between 2019 and 2020, household spending dropped 2.6%, the first drop in spending since the 2008 recession and the biggest drop since at least 1959, when the government started recording this measure.

With more earnings and less spending, households started saving at record rates.

From the mid-1980s to 2019, Americans saved less than 10% of after-tax income. But from March 2020 to August 2021, the savings rate averaged over 16% and climbed as high as 34% in April 2020.

The cost of a single-family home is higher than ever

Despite improved household finances, homeownership remains out of reach for many because the cost of purchasing a home has gone up in recent years as both home prices and mortgage rates have risen.

Department of Housing and Urban Development data shows that single-family home prices rose 33% since mid-2020. The median home sold at the start of 2022 for almost $430k—$100k more than two years earlier. The last time home prices rose this quickly in two years was the late 1970s.

Mortgage interest rates are higher.

The affordability of buying a home also depends on the interest rate used to finance a home purchase. According to Census data, about 95% of buyers take out mortgages to pay for their home. Mortgage rates hovered around a historically low 3% throughout the pandemic, to the end of 2021. This helped keep home purchases affordable in the face of rising prices. But in 2022, as the Federal Reserve hiked interest rates to help contain rising inflation, mortgage rates climbed to well over 5% (for a 30-year fixed-rate mortgage). Mortgage rates have not been this high since 2009.

As of March 2022, the monthly payment for a median-priced single-family home is $2,115 for a 30-year fixed-rate mortgage paying an interest rate of 3.89% per year, the median interest rate charged by Freddie Mac. The combination of higher prices and higher interest rates means that the monthly cost to service a mortgage—that is, to pay down the loan and the interest associated with it—has climbed, and rose faster than incomes since March 2021.

USAFacts has more on housing in the US, such as how new housing construction hasn’t kept pace with population growth.