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According to a recent Redfin report, buying a starter home in the U.S. is slightly cheaper than last year.
The annual income needed to afford the median-priced starter home, which is $250,000, decreased by 0.4% to $76,995, marking the first decline since August 2020.
The affordability improvement comes despite a 4.2% rise in starter home prices. The key factor is lower mortgage rates. The average interest rate on a 30-year mortgage dropped to 6.08%, significantly lower than the 7.07% rate a year ago. The decrease helped offset the price increase, making starter homes more accessible.
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But affordability remains a challenge. The income needed to buy a starter home is still just 3.6% below the record high of $79,857 set last fall.
“It’s great news that starter homes are becoming a little more affordable, but there’s a catch,” Redfin Senior Economist Elijah de la Campa said. “Starter homes aren’t what they used to be. A decade ago, a turnkey four-bedroom house in a nice neighborhood was often considered a starter home, but today, a small fixer-upper condo is often all a first-time homebuyer can afford.
“The American Dream is changing; for many, it no longer involves a house and a white picket fence.”
First-time homebuyers might want to act sooner rather than later. While recent interest rate cuts have made starter homes somewhat more affordable, experts predict that further improvements may be limited.
Most of the cuts’ positive impact has already been factored into mortgage rates. Home prices typically increase over time, so waiting to buy could mean paying more. It’s advisable to consider your financial situation and market trends to determine the best time to purchase.
The affordability of starter homes has improved slightly but remains a challenge for many. While the typical household now earns nearly 9% more than needed to afford a median-priced starter home, it’s a significant decline from pre-pandemic levels.
In 2019, households earned over half again what they needed and in 2012, they earned more than double. This suggests that the housing market has become increasingly less affordable over the past decade.
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|
August 2024 |
August 2023 |
August 2019 |
August 2012 |
|
|
Income needed to afford median-priced starter home |
$76,995 |
$77,343 |
$39,997 |
$24,905 |
|
Median household income |
$83,853 |
$79,689 |
$62,843 |
$53,046 |
|
Starter home median sale price |
$250,000 |
$240,000 |
$165,000 |
$95,000 |
|
Share of starter-home listings affordable to typical household |
75.8% |
72.6% |
98.2% |
98.4% |
|
Share of income typical household needs to spend to buy median-priced starter home |
27.5% |
29.1% |
19.1% |
14.1% |
Source: Redfin
“While many people make enough on paper to afford a starter home, they often have other expenses like student debt that are preventing them from buying,” said Blakely Minton, a Redfin Premier agent in Philadelphia.
Minton also noted that starter homebuyers are older than they used to be, noting that when she started working in real estate 20 years ago, they were fresh out of college.
“Now grads are saddled with huge student loans and are moving back in with Mom and Dad or renting,” Minton said. “I bought my first house at 23, but that’s hard to do today, in part because first-time buyers are competing with older Americans who want to downsize and are able to make higher offers.”
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This article You Now Need Less Income To Buy A Starter Home, But There’s A Catch – ‘Starter Homes Aren’t What They Used To Be’ originally appeared on Benzinga.com