Home prices are determined not by the average income of buyers, but by the average income required to qualify for a mortgage. The income required to qualify for a mortgage is always higher than the average income. Nationally, these two incomes differ very little. However, in New York City, the average income required to qualify for a mortgage is almost two times higher than the average household income. As a result, the average home price appears as high as if the average New Yorker's income were around $200,000. However, the actual average income is only around $75,000.
In 2023, the median household income in the United States was $76,170, and the median home price was $325,000. In the same year, the median household income in New York City was $75,000, and the median home price was $675,000.(1) Although the median income of New York City residents is almost equal to the median income of the United States, home prices in the city are almost twice as high as the national average. At first glance, this disparity seems unnatural. Median home prices should follow the income of most buyers. However, in New York City, this does not happen. Therefore, it seems that residential real estate is unaffordable for most buyers in New York City.
However, this is a misconception. Real estate values "-"-are determined not by average household income, but by the average income level required to qualify for a mortgage. After all, most home purchases are made with a mortgage. In 2024, approximately 71% of transactions nationwide were financed with a mortgage.(2) In New York City, this figure was 69%.(3)
However, mortgages are not issued to everyone, but only to people with a certain income level that allows them to simultaneously pay the loan and other living expenses. This income level is set by banks. Of course, the income required to qualify for a mortgage is always higher than the average income. Thus, banks try to reduce risks and increase profits by selecting the most creditworthy borrowers. But this difference is very small on a national scale. In 2024, the required income to qualify for a mortgage in the US was $89,649.(4) This is almost in line with the median household income at that time, which was $83,730.(5)
However, in New York City, the median household income and the median income required to qualify for a mortgage differ by almost two times! Therefore, New York City housing is affordable for New Yorkers who can get a mortgage, but unaffordable for New Yorkers earning the median income! And real estate is always priced according to what mortgage borrowers can afford, not according to people with median incomes who don't qualify for a loan.
In New York City, the required income level to qualify for a mortgage was $211,970 in 2024!(6) This is almost three times higher than the median household income in the city, which was $74,694 at the time.(7) This means that the affordable price of real estate is also almost three times higher than the national average of $325,000 for a median income of $76,170. Therefore, the $675,000 price quoted at the beginning of the article corresponds to the ability of New Yorkers who can qualify for a mortgage while earning $211,970.
That is, residential real estate in New York City is just as affordable for mortgage borrowers as anywhere else in the country. But for some reason, mortgages in New York City are extremely unaffordable for city residents. This has negative consequences for New Yorkers.
As is well known, only 30% of New York City residents own their own homes. That is, they are homeowners.(8) This is the lowest rate among all US metropolitan areas and almost half the national average of 66%.(8) But that's not all. Only 26.1% of New York City homeowners own their property free of mortgages.(9) This means only 7.5% of the city's residents truly own their own homes, free from the influence of other economic actors. The remaining 92.5% of New York City residents either pay mortgages or rent.
All of the above indicates that housing prices in New York City don't correspond to the average income level of city residents, but are equal to the average income required to qualify for a mortgage, which is three times higher. In other words, housing in New York City costs as much as if the average household income in New York City were around $200,000 per year!
This happened because the income level required to qualify for a loan steadily drifted away from the average income of New Yorkers. Along with the income level required to qualify for a loan, the average real estate price also drifted away from the average income of New Yorkers. If you want to find out who did this, follow the logic of detectives. Find the beneficiaries!
References
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2. click here
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