According to a recent data report by Redfin, starter homes in the United States have become more affordable to the average American compared to last year. However, over the past decade, they have seen a significant decrease in affordability. Redfin’s analysis considers household income levels and monthly housing payments to determine affordability, with the median-priced starter home currently priced at $250,000, requiring an annual income of $77,000 to afford.
Starter homes, defined as properties priced in the fifth to 35th percentiles of their markets, are considered affordable if the mortgage payment does not exceed 30% of the household income. The income required to purchase a starter home has decreased by 0.4% since August 2023, with the median household income now at $83,853 compared to $79,689 a year ago.
Lower mortgage rates have also contributed to improved affordability, dropping by more than half a percentage point in the past year and averaging 6.5% in August. However, Redfin’s senior economist, Elijah de la Campa, highlighted that the definition of starter homes has evolved over the years. What was once a turnkey four-bedroom house is now often a small fixer-upper condo due to affordability constraints.
While starter homes have become slightly more affordable in the last year, they are considerably less affordable than in the post-recession housing recovery of 2012 and the pre-pandemic period of 2019. The typical buyer now earns 8.9% more than required for monthly mortgage payments, compared to 57% in August 2019 and 113% in August 2012.
Redfin’s analysis also revealed a significant increase in home prices post-pandemic, with the median price of a starter home now 51% higher than in August 2019 and 163% higher than in August 2012. Wage growth has not kept pace, rising by 33% in the last five years and 58% in the last 12 years.
Notably, the affordability of starter homes varies across income levels, with only 43% of homes affordable to lower-income households earning 80% of the area median income. Redfin agent Blakely Minton pointed out that while many individuals may have the income on paper to afford a starter home, factors like student debt often hinder their ability to purchase.
Redfin’s analysis of the 50 most populous metro areas in the country identified both regions where starter homes have become more affordable, such as Anaheim, California, and areas where affordability has decreased significantly, like Chicago and Los Angeles. These findings reflect the evolving landscape of the housing market and the challenges faced by first-time buyers in today’s economy.
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