From Yahoo Finance: 2025-03-29 07:02:00

Home prices are rising, with the median existing-home sale price hitting $398,400 in February. Despite high mortgage rates, limited inventory is keeping prices up. A common rule advises keeping housing costs to 30% of gross income, but with today’s wages and home prices, that may not be feasible for many.

Median weekly earnings are $1,192, totaling about $61,984 annually. With a 30-year mortgage rate of 6.67%, a median U.S. home price of $398,400, and a 20% down payment, the monthly mortgage payment alone takes up nearly 40% of median income. The 30% rule doesn’t align with current wage and home price realities.

Calculating housing costs as a percentage of gross pay ignores taxes and other expenses. A more practical approach may be to limit housing expenses to 30% of net pay, considering non-housing expenses and long-term goals like retirement savings. Individual circumstances should also be factored in, such as low transportation costs or high childcare expenses.

Expensive debt or financial priorities like saving for college or retirement may warrant keeping housing costs below 30% of income. Establishing a household budget that aligns with needs and priorities, while following a budgeting rule like the 50/30/20 method, can help determine the appropriate allocation for housing expenses. The 30% rule is a good starting point but should be tailored to fit individual financial situations.

Read more: How to figure out the cost of your housing and budget without extending yourself