In half of the 50 most populous U.S. metros, a
family earning the local median income can’t afford a starter
home
(NASDAQ: RDFN) — The monthly housing payment for the typical
U.S. starter home that sold in July was $1,981, up 4.4% from a year
earlier, according to a new report from Redfin (redfin.com), the
technology-powered real estate brokerage. That means homebuyers
must earn $79,252 annually to afford the typical starter home, also
up 4.4% year over year and just a few hundred dollars shy of last
October’s all-time high.
Americans need to earn more than a year ago—and much more than
before the pandemic—to afford a starter home because mortgage rates
are elevated and home prices are near record highs. The average
mortgage rate was 6.85% in July, down slightly from its springtime
peak but still more than double pandemic-era lows. The typical
starter home sold for a record $250,000 in July, up 4.2% year over
year.
Rising prices have pushed many middle-income Americans to buy
starter homes, and pushed many lower-income households out of the
market altogether. The typical U.S. household earns an estimated
$83,966, just barely more than necessary to afford a starter home.
But many people in the market for starter homes make less than the
median U.S. income. A family earning 80% or less of the median
income—$67,173 or less—cannot afford the typical starter home.
Wages are increasing, but not as fast as the income needed to buy a
starter home: Average hourly earnings were up 3.6% year over year
in July.
Roughly 70% of U.S. starter homes are affordable to the
median-earning household, down from about 73% a year ago and near
the record low.
With housing affordability so strained, starter homes are a hot
commodity; lower-income families, middle-income families and
investors are all vying for them. Pending sales of starter homes
rose 10% year over year in July to their highest level in nearly
two years, while they dropped in all other price tiers. Rising
demand for starter homes is one reason prices are at a record
high.
“There are neighborhoods here that are both desirable and
affordable, with homes selling in the $150,000 to $350,000 range.
But first-time buyers are struggling because those homes typically
get at least five offers,” said Ben Ambroch, a Redfin Premier agent
in Milwaukee. “I recently listed a house for $210,000 and it
received several bids, one of which included an offer to buy the
seller pizza every Friday night until the deal closed. We ended up
going with a higher offer, but that’s an example of the creativity
we’re seeing as buyers compete for starter homes.”
Southern California homebuyers must earn double the local
median income to buy a starter home
In half of the 50 most populous U.S. metros, a family earning
the local median income can’t afford to buy a starter home.
The affordability gap for starter homes is biggest in
California. In both Anaheim and Los Angeles, a family would need to
earn twice the local income to afford a starter home. Anaheim’s
median income is $122,192; a family needs to earn $251,302 to
afford the typical starter home. In Los Angeles, the median income
is $93,197 and a household needs to earn $184,477 for a starter
home. The gap is only slightly smaller in San Diego, San Francisco
and San Jose.
It’s tough to afford even a starter home in much of California
because even though residents tend to earn more money than some
other parts of the country, it’s not enough to afford the state’s
ultra-high home prices. Among the pool of starter homes on the
market in many California metros, virtually none are affordable to
someone earning the median income.
“Homes in the Bay Area are so expensive that even many
high-earning tech employees have been priced out of the area, so
they’re looking at neighboring cities,” said Craig Pellegrini, a
Redfin Premier agent in the San Jose area. “I have one client who
wanted to buy in Palo Alto, but they can’t afford it anymore so
they’re looking in Sunnyvale and Santa Clara. That’s pricing out a
lot of lower earners in those neighboring cities completely.”
Typical Detroit family earns more than twice what they need
to afford a starter home
Starter homes are most affordable to median-earning families in
the Rust Belt. In Detroit, where the median household income is
$63,937, a family needs to earn $24,590 to buy the typical starter
home. That makes Detroit more affordable than any other major U.S.
metro for starter homes.
Next comes St. Louis, where the typical household earns $85,750
and a household needs $42,218 for a starter home. Pittsburgh,
Cleveland and Philadelphia round out the top five.
The income needed to buy a starter home declined in
Austin—and nowhere else
In Austin, a family needs to earn $117,781 to afford the
median-priced starter home. That’s down 2.5% from a year ago,
making it the only major metro that saw a decline; that’s because
home prices have been falling all year in the Texas capital. But
still, an Austin household earning the local median income of
$103,945 can’t afford a starter home.
The income needed to afford a starter home has increased most in
Chicago (+22.5%), Detroit (+19.5%), Cleveland (+15.6%), Cincinnati
(+14.7%) and Pittsburgh (+14.6%), as home prices have increased.
But the median-earning household can still afford a starter home in
those metros.
There are a few bright spots for starter-home buyers:
- There are more starter homes to choose from. Listings of
starter homes were up nearly 20% year over year nationwide in July,
much bigger than the 4.1% increase for mid-priced homes. That gives
prospective starter-home buyers in some parts of the U.S. more
inventory to choose from.
- Mortgage rates are coming down. The average weekly
mortgage rate was 6.46% as of August 22, down from 7.22% in May and
a two-decade high of 7.79% last October.
- Growth in income needed to afford a starter home is
slowing. The 4.4% year-over-year increase in income necessary
to afford a starter home is one of the smallest since the start of
2021. For comparison, the increase was 14% in July 2023.
To view the full report, including charts, additional
metro-level data and methodology, please visit:
https://www.redfin.com/news/starter-home-affordability-july-2024
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate
company. We help people find a place to live with brokerage,
rentals, lending, title insurance, and renovations services. We run
the country's #1 real estate brokerage site. Our customers can save
thousands in fees while working with a top agent. Our home-buying
customers see homes first with on-demand tours, and our lending and
title services help them close quickly. Customers selling a home
can have our renovations crew fix it up to sell for top dollar. Our
rentals business empowers millions nationwide to find apartments
and houses for rent. Since launching in 2006, we've saved customers
more than $1.6 billion in commissions. We serve more than 100
markets across the U.S. and Canada and employ over 4,000
people.
Redfin’s subsidiaries and affiliated brands include: Bay Equity
Home Loans®, Rent.™, Apartment Guide®, Title Forward® and
WalkScore®.
For more information or to contact a local Redfin real estate
agent, visit www.redfin.com. To learn about housing market trends
and download data, visit the Redfin Data Center. To be added to
Redfin's press release distribution list, email press@redfin.com.
To view Redfin's press center, click here.
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version on businesswire.com: https://www.businesswire.com/news/home/20240829671762/en/
Redfin Journalist Services: Ally Forsell, 206-588-6863
press@redfin.com
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