How much do you need to earn to afford a house in Greater Boston? $181,000 a year, says new study.

Harvard’s estimates assume a down payment of 3.5 percent on a 30-year fixed rate mortgage, and that buyers would spend no more than 31 percent of their income on mortgage payments. They also assume a median-priced house valued at $659,161 in the Greater Boston metro area, which covers most of eastern Massachusetts and southern New Hampshire, but is significantly lower than prices found in most communities inside Route 128. At $181,254, Harvard’s estimate for Greater Boston is nearly twice the region’s median household income of $93,537.

The report comes after a year when both home prices and rents across the country shot up at “the fastest pace in decades,” as the Harvard report put it. Nationally, home prices jumped 20.6 percent as of March — the highest increase in 30 years. In Greater Boston region, prices are up 15.9 percent.

“If you’re a homeowner, you just won the lottery. And if you’re not, you just got locked out for a long time,” said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies. “That’s certainly very true in the Boston area, where housing prices are so high to begin with.”

And lately, interest rates have soared, with the average rate on a 30-year fixed rate mortgage nearly doubling since the start of the year. The market has seen nothing like it since the so-called “Volcker Shock,” named after former US Federal Reserve Chair Paul Volcker, in 1980 when mortgage rates shot up by 4 percentage points in the span of three months, said Jeff Tucker, senior economist for housing website Zillow.

“The change in mortgage rates is really multiplying the affordability impacts of the price increases that happened throughout the pandemic,” Tucker said. “That altogether created an absolutely extraordinary increase in the cost of homeownership. The monthly cost of a mortgage payment is up astronomically in the past year, when you take that combination of higher prices and higher interest rates.”

In markets like Greater Boston, where white households are roughly twice as likely to own their home as Black and Hispanic households, the rapid increase in home prices has further widened the racial wealth gap, the Harvard report says. The combined effect of price appreciation and the sharp jump in interest rates is “going to lock in historical inequality in terms of who’s been able to become an owner,” Herbert said.

Much of the demand for homes in the past year and a half has come from would-be buyers interested in locking in record-low interest rates, which, Tucker said “enabled a lot of people to kind of make the numbers work, even buying homes that they previously would have considered unaffordably expensive.”

There are potentially cooler times ahead. The run-up in prices and sharp jump in mortgage rates has already priced many would-be buyers out of the market, and sales volume has slowed in recent months in many parts of the country.

The current jump is “arriving right as the market was just about the hottest it had ever been by any measure,” Tucker said. “That is already beginning to cool down the market.”

A cool-down could create healthier housing market conditions, but experts say more supply is needed.

The Harvard report pointed to Massachusetts’ new rule requiring the 175 municipalities served by the MBTA set aside certain areas for multifamily housing. The proposed rules have met resistance from some towns, and the state this spring is reviewing feedback before it releases its final guidance.

Local inventory of available homes has been low for years, and the US has been “heavily under-supplied” since the Great Recession of 2008, said Herbert of the Harvard JCHS. That’s a major factor making this moment in the housing market different than the crash 15 years ago, he said. In 2006, the US built 2 million new homes, many of them purchased with big mortgages their owners couldn’t afford. When prices fell, a wave of foreclosures crashed the market.

This time around, tougher lending standards and higher down payments means that most homeowners have more equity.

“We do have a lot of wealth out there that’s helping to bid up these prices,” Herbert said. “But it’s equity. It’s not debt. So it’s a very different market that way.”

Have a Massachusetts house hunting story of your own? Tell us in the comments.


Catherine Carlock can be reached at catherine.carlock@globe.com. Follow her on Twitter @bycathcarlock

Leave a Reply

Your email address will not be published.