Homebuyers must earn more than $400,000 to afford a home in the 2 priciest metro areas — and New York isn’t one of them

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As home prices and interest rates rise, would-be home buyers need a salary of $114,627 to afford a median-priced house in the U.S., according to a recent report by real estate site Redfin.

If you want to buy in one of the most expensive metro areas of the U.S., you’ll need to earn even more: in the top 10 cities, more than $200,000, or close to it, researchers estimate. And buying in the priciest two metros would require salaries of more than $400,000. Redfin analyzed median monthly mortgage payments in August 2023 and August 2022.

To put those figures into perspective, the median U.S. household income was $75,000 in 2022, according to the report.

Metros where homebuyers need to earn the most

San Francisco and San Jose, California, are the top two metros that require the highest salaries, of $404,332 and $402,287, respectively, according to Redfin.

“The Bay Area has consistently been one of the most expensive markets in the country,” said Daryl Fairweather, chief economist at Redfin.

Three more California metros — Anaheim, Oakland and San Diego — round out the top five, requiring interested buyers to earn between $240,000 to $300,000 annually.

The median income in these cities is high, but so are real estate prices. Higher interest rates have increased the cost to borrow, so buyers will need to show significant income to get a mortgage.

Why the New York metro area is low on the list

Midtown Manhattan as seen from Hoboken, New Jersey.

Gary Hershorn | Corbis News | Getty Images

While the borough of Manhattan in New York may have the highest cost of living among U.S. cities, according to the Council for Community and Economic Research’s Cost of Living Index, the New York metro area as a whole ranks ninth on Redfin’s list.

That’s because the metro area goes beyond Manhattan and the city’s four other boroughs, extending into nearby counties.

“Even though Manhattan is like really expensive, once you get to the outlying areas [in] the New York metro area, it actually becomes quite affordable,” said Fairweather.

To be sure, interested homebuyers in the region still need to earn six figures annually to afford a home — about $197,734, Redfin estimates.

All-cash purchases price out first-time homebuyers

Earning a high salary isn’t enough in some competitive markets. Buyers may find themselves competing against veteran homeowners who can make cash offers.

Some home buyers are using their home equity to buy new homes in lower-priced areas instead of financing, to avoid an 8% mortgage rate, said Fairweather.

“That might be driving prices up and affordability down,” she said.

The share of first-time home buyers dipped to 27% in the month of September, down from 29% in August, according to the Realtors Confidence Index Survey. Over the same period, all-cash buyers bumped to 29% from 27%.

Historically, first-time home buyers would make up around 40% of the housing market, said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.

“Seeing it at 27% speaks to the affordability and inventory challenges first-time homebuyers are facing,” said Lautz.

All-cash home buyers are largely older consumers who have housing equity and are able to make housing trades without financing new mortgages, added Lautz.

Additionally, while some all-cash buyers are local to the areas in which they’re buying, long distance movers are more likely to pay in full.