A first-time homebuyer must make at least $76,000 a year to afford a typical starter home in the U.S., a new study from Redfin found—marking an increase of 8% from one year ago as mortgage rates remain high and home prices rise.
The income needed to buy a starter home in the U.S. increased this year in part because of higher mortgage rates as the average 30-year fixed mortgage rate rose more than 6% compared to last year.
The cost of average starter homes—defined by Redfin as homes with sale prices between the 5th and 35th percentile—also increased 3.4% year-over-year, with the average being sold for $240,000 in February.
Buyers in California need the highest income to afford a starter home, with people needing to make about $319,000 to buy a median-priced starter home in San Jose, $306,000 in San Francisco and $247,000 in Anaheim.
The Rust Belt is where buyers can buy a starter home with the lowest income, needing to make about $22,000 in Detroit, $32,000 in Pittsburgh and $37,000 in St. Louis.
Redfin calculated the annual income needed to afford a starter home using the standard rule that a home is “affordable” if a buyer spends no more than 30% of their income while assuming a 3.5% down payment.
Although it’s harder to afford a starter home than before the COVID-19 pandemic began, affordability is slowly improving after hitting a low point in the fall. In October, the income needed to buy a starter home hit an all-time high of $82,373 before dropping to the $76,000 first-time buyers now need to make.
The price isn’t the only aspect of a starter home that has changed since the pandemic. Redfin Senior Economist Elijah de la Campa said in the report that the “pandemic housing-market boom” also changed the definition of a starter home, noting people used to consider “a small three-bedroom single-family house” a starter home, but now that can go for seven figures in expensive markets.
“Rising prices and mortgage rates are pushing buyers who earn more than the median income to buy starter homes, and often pushing buyers who earn less money out of the market,” de la Campa said.
17.5%. That’s how much income needed to afford a starter home increased from last year in New Brunswick, New Jersey, which had the highest year-over-year increase among the 50 most populous U.S. metros. Pittsburgh was the only city where income needs declined, with the necessary income to buy a starter home dropping 0.8%.
