First-Time Buyers Need To Earn At Least $64,500 To Afford Their First Home
Written by
Vance Cariaga
Edited by
Ashley Almario
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Workers in the United States earn a median income of about $57,200 a year, according to the latest data from the U.S. Bureau of Labor Statistics. This means the typical U.S. worker is more than $7,000 short of being able to afford a starter home, based on new research from Redfin, a Seattle based residential real estate broker.
A first-time homebuyer must earn roughly $64,500 a year to afford the typical U.S. “starter” home, according to a July 28 report from Redfin. That’s up 13% — or $7,200 — from a year earlier. The increase is largely due to rising mortgage rates and historically high home prices.
The typical starter home sold for a record $243,000 in June 2023, Redfin reported, which is a gain of 2.1% from a year earlier and up more than 45% from before the COVID-19 pandemic. Average mortgage rates rose to 6.7% in June from 5.5% the year before and less 4% pre-pandemic.
One of the biggest housing challenges right now is simply finding a home to begin with. Redfin data shows that the new listings of starter homes for sale in June sank 23% from a year earlier — the biggest decline since the start of the pandemic. The total number of starter homes on the market is down 15%, which is also the biggest drop since the start of the pandemic.
These dynamics contributed to a 17% year-over-year drop in starter home sales in June.
“Buyers searching for starter homes in today’s market are on a wild goose chase because in many parts of the country, there’s no such thing as a starter home anymore,” Redfin Senior Economist Sheharyar Bokhari said in a press release. “The most affordable homes for sale are no longer affordable to people with lower budgets due to the combination of rising prices and rising rates.”
The result is that many Americans are locked out of the housing market altogether, Bokhari added. The only ones who stand to benefit are current homeowners who’ve seen their home values skyrocket in recent years.
“That could lead to the wealth gap in this country becoming even more drastic,” Bokhari said.
Here are some other highlights from the Redfin report:
- San Francisco, Phoenix and Austin, Texas are the only major U.S. metros where the income needed to buy a starter home has dropped over the last year. Meanwhile, that income has soared more than 20% in the Florida cities of Fort Lauderdale and Miami.
- The share of starter homes going to all-cash buyers is near a decade high.
The situation is so challenging that the concept of a starter home has become completely outdated for most first-time buyers — especially millennials and Gen Zers.
As GOBankingRates previously reported, recent data from the National Association of Realtors found that nearly 40% of Americans between the ages of 25 and 44 who bought a home last year plan to stay in the house for at least 16 years. That’s much longer than the occupancy for the typical starter home, which is about five years.
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