While starter homes are more affordable for the average American than they were a year ago, prices have fallen significantly over the past decade. that’s the conclusion red fin This was revealed in a data report released on Monday.
The national real estate brokerage analyzed households’ income levels and monthly housing payments to calculate the affordability index. Buyers in August 2024 needed an annual income of $77,000 to afford a starter home with a median price of $250,000. Starter homes are defined as homes priced between the 5th and 35th percentiles of their respective markets, and are considered affordable if their mortgage payments do not exceed 30% of household income.
The income required to purchase a typical starter home decreased by 0.4% compared to August 2023, when the median price was $240,000. Median household income is now $83,853, up from $79,689 a year ago, and wages have increased. Lower mortgage rates are also supporting home affordability, although mortgage rates have fallen more than half a percentage point over the year to average 6.5% in August, according to Redfin.
“While it’s great news that starter homes are becoming a little more affordable, there is a catch,” Elijah de la Campa, senior economist at Redfin, said in a report. “Starter homes aren’t what they used to be. Ten years ago, a turnkey four-bedroom house in a nice neighborhood was considered a starter home, but now it’s the first homebuyer to be able to buy. are often just small, fix-up condos.”
Importantly, while the starter housing segment has become slightly more affordable over the past year, it remains far less affordable than it was during the post-recession housing recovery of 2012 or the pre-pandemic period of 2019.
When comparing income to monthly mortgage payment costs, the typical buyer currently earns 8.9% more than they need. In August 2023, that number was just 3%. However, in August 2019, household income increased by 57% more than needed, and in August 2012 it increased by 113%.
Redfin calculated the median monthly mortgage payment using each month’s median sales price and average mortgage interest rate, assuming a 3.5% down payment.
| August 2024 | August 2023 | August 2019 | August 2012 | |
| Income required to purchase a median priced starter home | $76,995 | $77,343 | $39,997 | $24,905 |
| median household income | $83,853 | $79,689 | $62,843 | $53,046 |
| Median starter home sales price | $250,000 | $240,000 | $165,500 | $95,000 |
| Share of starter housing properties that are affordable for ordinary families | 75.8% | 72.6% | 98.2% | 98.4% |
| Percentage of income a typical household would need to spend to purchase a median-priced starter home | 27.5% | 29.1% | 19.1% | 14.1% |
Redfin noted that the post-pandemic home price surge was due to a sudden surge in demand associated with historically low mortgage rates. As a result, the median price for starter homes is now 51% higher than in August 2019 and 163% higher than in August 2012. Meanwhile, wage growth has increased by 33% over the past five years and 58% over the past 12 years. .
“In other words, the income needed to buy a starter home has tripled since 2012, but the median household income has not even doubled,” Redfin reported.
In both 2012 and 2019, nearly all starter homes for sale were affordable to households earning the area median income (AMI). Its share has now fallen to about 76%. For low-income households making 80% of AMI, only 43% of starter homes are affordable.
“Many people have enough income on paper to buy a starter home, but they have other expenses like student loans that prevent them from buying,” said Blakely Minton, a Philadelphia-based Redfin agent. “There are many,” the report said.
“Entry-level home buyers are becoming more skewed in age than they used to be. Twenty years ago, when I first started working in real estate, they were kids straight out of college. Now they’re graduates. They have huge student loans and are living with their moms and dads or going back to renting.”
Redfin analyzed the 50 most populous metropolitan areas in the country and found that some areas have become more affordable over the past year. In Anaheim, California, the income required to purchase a starter home has decreased by 8.1% since August 2023, leaving the income required to enter the market at an astonishing $217,300.
Austin (-5.8%); West Palm Beach, Florida (-5%); Phoenix (-4.8%); Dallas (-4.7%) also improved in affordability for typical first-time buyers over the past year It was done.
Conversely, some of the more affordable metros in the Midwest recorded the sharp increases in revenue needed to enter the market. In Chicago, to afford a median-priced starter home, buyers need to earn $77,238 annually, an increase of 15.4% from the previous year. It was followed by Los Angeles (+14.7%), Detroit (+14.5%), Cincinnati (+9.7%) and Pittsburgh (+9.6%).
