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If you're thinking about getting into the real estate market, you've probably already done the math to determine how much you'll need to save for a 20% down payment and estimate what your monthly mortgage payments will be.
Before you apply for a mortgage, you need to make sure you have the income and savings necessary to buy a home and can afford it.
Analyze the current real estate market and determine the income needed to purchase a $500,000 home in each state.
When interest rates fell during the pandemic, many saw this as an opportunity to get into the real estate market, causing home prices to skyrocket. However, the current real estate market is very different from what it was in 2020.
According to the National Association of Realtors (NAR), existing home sales in January 2023 increased 3.1% compared to December but were down 1.7% compared to a year ago. The national average sales price was $379,100, the highest ever for January and up 5.1% compared to a year ago. First-time homebuyers accounted for 28% of home sales in January, down from 29% in December.
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There was a three-month supply of inventory in January, meaning it's currently a seller's market. Since five to six months' worth of inventory is needed to maintain a balanced market, the lack of inventory is problematic for potential buyers across the country.
According to Redfin, as of January, about 89% of people with mortgages are living on interest rates below 6%. This means that most homeowners are paying a lower interest rate on their home than their current mortgage rate, meaning they are less likely to sell their home because they don't want to buy another home with a higher interest rate. This has had an impact on the housing market, with inventory lower than usual and home prices remaining high due to supply issues. People looking to get into the real estate market are struggling as they can't find the home they want or can't save up enough money for a down payment.
An aggressive campaign of interest rate hikes by the Federal Reserve to tame soaring inflation has made homeownership more expensive, and the combination of rising mortgage payments and a shortage of housing inventory has left people frustrated.
It's hard to predict what the market will do in 2024, but many experts are waiting to see if the Fed cuts interest rates to make mortgage payments more affordable. If interest rates fall significantly in 2024, more homeowners may want to sell, addressing the supply problem.
The story continues
To determine how much income you need to buy a $500,000 home in each state, GOBankingRates has compiled some data: Here's a breakdown of how much income you'll need to buy a $500,000 home in each state, along with the monthly mortgage payment.
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Alabama
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Alaska
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Dennis Tangney Jr./Getty Images/iStockphoto
Arizona
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Arkansas
Kirk Wester/Getty Images/iStockphoto
California
Muhammad Zulkifar/Getty Images/iStockphoto
Colorado
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Benedek/Getty Images
Connecticut
Brian Ekashner/Getty Images/iStockphoto
Delaware
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Florida
Shawn Pavone/iStock.com
Georgia
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Hawaii
Jennifer Sharp/Getty Images/iStockphoto
Idaho
Mullenyi/Getty Images
Illinois
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Indiana
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Iowa
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Kansas
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Kentucky
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Louisiana
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Maine
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Maryland
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Massachusetts
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Michigan
Read more: The cheapest places to buy a home in each state
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Minnesota
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Mississippi
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Missouri
Diane Bentley-Raymond/Getty Images
Montana
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Nebraska
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Nevada
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New Hampshire
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New Jersey
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New Mexico
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new york
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North Carolina
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North Dakota
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Ohio
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Oklahoma
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Oregon
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Pennsylvania
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Rhode Island
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South Carolina
Dennis Tangney Jr./iStock.com
South Dakota
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Tennessee
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Texas
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Utah
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Vermont
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Virginia
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Washington
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West Virginia
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Wisconsin
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Wyoming
Methodology: To find out how much income you need to buy a $500,000 home in each state, GoBankingRates looked at the national 30-year fixed interest rate (6.90%) for mortgages taken from the Federal Reserve Economic Survey. Property taxes for each state were also collected and sourced from the Tax Foundation. GOBankingRates then calculated the annual mortgage cost for a $500,000 mortgage with a 5%, 10%, 15%, and 20% down payment. Using the calculated mortgage options and property taxes, you can estimate the annual cost for each state. Most financial experts suggest that housing costs should not exceed 30% of your salary, so GOBankingRates calculated the income needed to pay off a $500,000 mortgage, assuming annual mortgage costs are no more than 30% of your costs. All data collected and up to date as of May 14, 2024.
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This article originally appeared on GOBankingRates.com: Real Estate 2024: Here's how much you need to earn to buy a $500,000 home in each state