In order to afford a basic home in the U.S., Americans now need to earn at least $76,000 a year, a significant increase from the pre-pandemic recommendation, as reported by Redfin.
Just four years ago, individuals with annual incomes of $40,500 could afford a typical starter home, according to the online real estate firm. However, the combination of rising mortgage rates and record high home prices has pushed the cost out of reach for many Americans.
"The pandemic housing-market boom has redefined what a starter home means," stated Redfin Senior Economist Elijah de la Campa. "A decade ago, a starter home was often seen as a small three-bedroom single-family house. Now, especially in expensive parts of the country, such a home could cost seven figures."
The average full-time worker in the U.S. earns around $1,145 per week, equivalent to approximately $66,000 annually, based on government data. Redfin considers a home affordable if the buyer spends no more than 30% of their income on housing, assuming a 3.5% down payment.
Starter homes, known for being smaller and more affordable dwellings for first-time buyers, are facing challenges in today's market. Many of these properties are in poor physical condition and require significant renovations to make them livable, driving up the overall cost, according to experts.
In February, the median price of a typical starter home was $240,000, marking a 3.4% increase from the previous year, as reported by Redfin. In comparison, the median sale price for such homes was $169,000 in February 2020, with an average mortgage rate of around 3.5%.
Current rates for a conventional 30-year loan are at 6.87%, while the median home price in February was $384,000, according to data from the National Association of Realtors.
Due to a limited supply of affordable homes on the market, first-time buyers are also facing competition from a growing number of all-cash offers. Redfin found that more than a third of the nation's starter homes were purchased with cash in February.
While real estate prices vary significantly across the United States, some cities are more affordable than others. For instance, residents in San Jose need an annual income of around $319,000 to afford a home, while in Detroit, earnings of $22,000 are sufficient.
Looking beyond starter homes, the affordability challenge persists for the average homebuyer. According to recent research from Zillow, Americans need to earn approximately $106,500 to comfortably afford a typical home.
