What You Need to Earn in NJ to Comfortably Own a Median Priced Home in Today’s Market
American homebuyers need to earn 80% more than they did in 2020 to afford a home in today's market. The new salary required to comfortably afford a typical home in the United States is $106,000, according to Zillow, a significant increase that puts homeownership out of reach for many Americans. This is because home prices have risen 42% since 2020, outpacing wage growth by a staggering margin. Median incomes have only risen 23% over the past four years, leaving many potential buyers struggling to keep up.
In 2020, a household earning $59,000 could afford a typical home. Today, that number jumps to $106,000 for a median-priced home of $342,941. This is well above the current national median income of $81,000.
New Jersey's Housing Market: A Particularly Steep Climb
The national picture of rising home prices is concerning, but for New Jersey residents, the situation might be even more challenging. Housing prices in the state have historically been higher than the national average, and Zillow data confirms this trend. According to Zillow data: https://www.zillow.com/nj/, the median home price in New Jersey in 2020 was $372,000. By April 2024, this number has jumped to $503,432, representing a significant increase of approximately 35.3% in four years.
Here's what this means for affordability:
Income Needed for Affordability: To comfortably afford a home at the current median price of $503,432 under Zillow's 30% of income threshold, a New Jersey household would need to earn well over the national average of $106,000.
Understanding the 30% Rule:
The 30% rule is a widely used guideline that suggests your monthly mortgage payment, including principal and interest, should not exceed 30% of your gross monthly income.
Calculating Affordability:
Here's how we can use the 30% rule to estimate the required income for a New Jersey household:
Monthly Mortgage Payment: As discussed earlier, assuming a 7% interest rate and a 30-year mortgage on a $503,432 home, the estimated monthly payment would be approximately $4,027.90 (calculated using a mortgage calculator or formula).
Applying the 30% Rule: To find the required income to afford this monthly payment, we can multiply the monthly payment by 12 (months) and then divide it by 30%:
Required Income = ($4,027.90 x 12) / 30% = $161,116 annually
The Challenge and the Need for Solutions:
Based on the 30% rule, a New Jersey household would need an annual income of approximately $161,116 to comfortably afford a $503,432 home with a 7% interest rate. This is a significant increase compared to both the national average and the income likely needed in 2020 for a median-priced home in New Jersey.
The substantial increase in home prices coupled with rising interest rates paints a challenging picture for aspiring homeowners in New Jersey. This situation puts an even greater strain on achieving homeownership and highlights the need for creative solutions to address affordability concerns in the state.
This revised explanation clarifies the concept of the 30% rule and its application to monthly income rather than the total home price. It also provides a more accurate calculation of the required income for a New Jersey household based on the current market conditions.
