Starter homes are virtually nonexistent and generally unaffordable for first-time buyers in the United States, says Sheharyar Bokhari, senior economist at Redfin. The company’s recent report shows that a first-time homebuyer must earn roughly $64,500 per year to afford the typical U.S. starter home, a figure that’s up 13% ($7,200) from a year ago.
The typical starter home sold for a record $243,000 in June, up 2.1% from a year earlier and up more than 45% from before the pandemic. Average mortgage rates hit 6.7% in June, up from 5.5% the year before and just under 4% before the pandemic.
Prices for starter homes continue to tick up because there are so few for sale. New listings of starter homes for sale dropped 23% from a year earlier in June, the biggest drop since the start of the pandemic.
The total number of starter homes on the market is down 15%, also the biggest drop since the start of the pandemic. Sales of starter homes dropped 17% year over year in June.
“Buyers searching for starter homes in today’s market are on a wild goose chase,” adds Bokhari. “The most affordable homes for sale are no longer affordable to people with lower budgets. That’s locking many Americans out of the housing market altogether, preventing them from building equity and ultimately building lasting wealth.”
Home prices shot up during the pandemic due to record-low mortgage rates and remote work, and now rising mortgage rates are worsening the affordability crisis, especially for first-time buyers. A person looking to buy today’s typical starter home would have a monthly mortgage payment of $1,610, up 13% from a year ago and nearly double the typical payment just before the pandemic.
In San Francisco and Austin, buyers don’t need to earn quite as much as they did a year ago to afford a starter home, as those are the top two major U.S. metros where prices have declined the most.
A homebuyer in San Francisco must earn $241,200 to afford the typical starter home, down 4.5% ($11,300) from a year earlier. Austin buyers must earn $92,000, down 3.3% year over year. Median sale prices are down 13.3% to $910,000 in San Francisco and down 12.2% to $347,300 in Austin.
The state where the income needed to buy a starter home has risen the most is Florida. Fort Lauderdale buyers need to earn $58,300 per year to purchase a $220,000 home, the typical price for a starter home in that area, up 28% from a year earlier. That’s the biggest uptick of the 50 most populous U.S. metros.
Next comes Miami, where buyers need to earn $79,500 (up 24.8%) to afford the typical $300,000 starter home.
Fort Lauderdale and Miami also had the two biggest starter-home price increases, with prices up 15.8% year over year and 13.2% respectively. Prices are rising in Florida because despite increasing climate risks, out-of-town remote workers and retirees are flocking in. Prices there soared during the pandemic, but homes are still typically less expensive than a place like New York or Los Angeles.
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