Redfin, the technology-powered real estate brokerage, has officially published results from its latest study, which claims that homebuyers must earn nearly $80,000 to afford the typical U.S. starter home, a number just shy of the all-time high. Marking a 4.4% uptick year over year, this problem of unaffordable housing is understood to come from the fact that mortgage rates are elevated, and of course, from home prices being near record highs. You see, average mortgage rate was 6.85% in July, down slightly from its springtime peak but still more than double pandemic-era lows, with a typical starter home sold for a record $250,000 in July, up 4.2% year over year. To contextualize the problem, we ought to acknowledge how an average US household earns an estimated $83,966. This number, like we touched upon, is only a sliver more than what is necessary to afford a starter home. Having said so, many people in the market for starter homes also make less than the median U.S. income. In essence, a family earning 80% or less of the median income—$67,173 or less—cannot afford the typical starter home. Now, while wages are surely going up, they are not as fast as the income needed to buy a starter home. More on the same would reveal that, in half of the 50 most populous U.S. metros, a family earning the local median income can’t afford to buy a starter home. In fact, the affordability gap for starter homes is biggest in California.
Further context would reveal that both Anaheim and Los Angeles are functioning in an environment where a family would need to earn twice the local income to afford a starter home. Anaheim’s median income is $122,192; a family needs to earn $251,302 to afford the typical starter home. On the other hand, if we talk about Los Angeles, the median income is $93,197 and a household needs to earn $184,477 for a starter home. The gap is only slightly smaller in San Diego, San Francisco, and San Jose. The study in question also revealed that starter homes are most affordable to median-earning families across the Rust Belt. Hence, in Detroit, where the median household income is $63,937, a family needs to earn $24,590 to buy the typical starter home. Such a piece of data makes Detroit more affordable than any other major U.S. metro for starter homes. Joining that is St. Louis. Here, typical household earns $85,750 and a household needs $42,218 for a starter home.
Then, there is Austin, a place where families need an average of $117,781 to afford the median-priced starter home, indicating a 2.5% decline from a year ago. The stated decline can be written off to home prices falling all year in the Texas capital.
“There are neighborhoods here that are both desirable and affordable, with homes selling in the $150,000 to $350,000 range. But first-time buyers are struggling because those homes typically get at least five offers,” said Ben Ambroch, a Redfin Premier agent in Milwaukee. “I recently listed a house for $210,000 and it received several bids, one of which included an offer to buy the seller pizza every Friday night until the deal closed. We ended up going with a higher offer, but that’s an example of the creativity we’re seeing as buyers compete for starter homes.”
With the housing market’s affordability concerns now duly documented, it must be mentioned that there remain some promising points for starter-home buyers. For instance, the US population now has more starter homes to choose from, as listings of starter homes were up nearly 20% year over year nationwide in July, much bigger than the 4.1% increase for mid-priced homes. Next up, one must refer to how mortgage rates are also expected to come down moving forward. The trend for this is already established, and you can confirm that once you take into account how average weekly mortgage rate was 6.46% as of August 22, down from 7.22% in May and a two-decade high of 7.79% last October.
