First-time buyers need this much to afford a starter home
First-time buyers need to earn nearly $6K more to buy a home than they did a year ago
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First-time homebuyers have to earn nearly twice as much money to purchase a starter home compared with pre-COVID-19 pandemic times.
As of February, first time buyers needed to earn $75,849 annually to afford the typical U.S. starter home, which is nearly $6,000 more than they did a year ago, due to elevated mortgage rates and high home prices, according to recent data from Redfin.
According to data from the technology-powered real estate brokerage, the monthly housing payment for a starter home jumped 8.2% in February from a year earlier, reaching $1,896.
It's a stark difference compared with February 2020 – before the pandemic – when Americans needed to earn $40,465 annually to afford a starter home. At the time, the median sale price was $169,000 and the average mortgage rate was about 3.5%, according to Redfin data.
Today, mortgage rates are hovering just under 7%.
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It's a stark difference, compared with February 2020 – before the pandemic – when Americans needed to earn $40,465 annually to afford a starter home. (Ray Chavez/Digital First Media/The Mercury News via Getty Images / Getty Images)
While incomes are on the rise, they are not keeping pace with the rate of starter-home costs.
As of February, a typical American household earned an estimated $84,072, up 5.5% from a year earlier. In comparison, the income needed to purchase a starter home jumped 8.2% from a year earlier.
Today, the median income is 11% higher than what's needed to buy a starter home. However, a year ago, it was 14% higher, and during pre-pandemic times, it was 63% higher, according to Redfin.
A man walks his dog past a "for sale" sign displayed outside a single-family home on Sept. 22, 2022, in Los Angeles, California. (Allison Dinner/Getty Images / Getty Images)
In a separate report, the brokerage noted that a buyer in the overall market must earn about $114,000 to afford the typical U.S. home. That is roughly $30,000 more than the median U.S. household income.
Redfin senior economist Elijah de la Campa said that the pandemic, which caused a "housing-market boom," ended up changing the definition of a starter home.
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"A decade ago, many people thought of a starter home as a small three-bedroom single-family house. Now that type of home could cost seven figures, especially in expensive parts of the country," de la Campa said.
Today, the median income is 11% higher than what's needed to buy a starter home. However, a year ago, it was 14% higher, and during pre-pandemic times, it was 63% higher, according to Redfin. (Craig Warga/Bloomberg via Getty Images / Getty Images)
Not only are the most affordable homes much smaller, but they "often require a lot of work to make them habitable – which makes them cost even more," he added.
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With rising prices and borrowing costs, "today’s most affordable homes are still hard for the average American to afford, let alone the average first-time buyer who tends to put less money down in exchange for higher monthly payments," de la Campa said.