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High mortgages and stubbornly elevated home prices are worsening the housing affordability crisis. A first-time homebuyer must earn roughly $64,500 per year to afford the typical U.S. “starter” home, up 13% from a year ago, according to a new report from Redfin.
In June, the typical starter home sold for a record $243,000, up 2.1% from a year earlier and up more than 45% from before the pandemic. Average mortgage rates hit 6.7% in June, up from 5.5% the year before and just under 4% before the pandemic.
New listings of starter homes dropped 23% from a year earlier in June, the biggest drop since the start of the pandemic, the report found. Meanwhile, the total number of starter homes on the market is down 15%, also the biggest drop since the start of the pandemic.
As a result of the limited supply, still-rising prices and elevated mortgage rates, sales activity for starter homes has stifled. It dropped 17% year over year in June.
The cost of financing a median-priced U.S. home, assuming a 20% downpayment, rose 12.4% from June 2022, according to Realtor.com economic researcher Hannah Jones.
Meanwhile, average U.S. wages have risen 4.4% from a year ago and roughly 20% from before the pandemic. It is not enough to make up for the jump in monthly mortgage payments and higher home prices.
To compound matters, rents remain elevated too, applying additional pressure on already challenged prospective first-time homebuyers. The typical U.S. asking rent is just $24 shy of the $2,053 peak hit in 2022.
“Buyers searching for starter homes in today’s market are on a wild goose chase because in many parts of the country, there’s no such thing as a starter home anymore,” said Redfin Senior Economist Sheharyar Bokhari. “The most affordable homes for sale are no longer affordable to people with lower budgets due to the combination of rising prices and rising rates. That’s locking many Americans out of the housing market altogether, preventing them from building equity and ultimately building lasting wealth. People who are already homeowners are sitting pretty, comparatively, because most of them have benefited from home values soaring over the last few years. That could lead to the wealth gap in this country becoming even more drastic.”
San Francisco, Austin and Phoenix buck the trend
A homebuyer in San Francisco must earn $241,200 to afford the typical “starter” home, down 4.5% ($11,300) from a year earlier. Austin buyers must earn $92,000, down 3.3% year over year, and Phoenix buyers must earn $86,100, down about 1%.
Those are also the metros where prices of starter homes have declined most, with median sale prices down 13.3% to $910,000 in San Francisco, down 12.2% to $347,300 in Austin, and down 9.7% to $325,000 in Phoenix.
The housing markets in Austin and Phoenix have fallen back down to earth since the remote-work relocations craze stopped. High mortgage rates and scarce listings brought down home prices as well.
Florida is the state where the income necessary to buy a starter home has risen the most
The biggest uptick of the 50 most populous US metro goes to Fort Lauderdale, Florida. There, buyers need to earn $58,300 per year to purchase a $220,000 home, up 28% from a year earlier. Next comes Miami, where buyers need to earn $79,500 (up 24.8%) to afford the typical $300,000 starter home. Third is Newark, NJ, where buyers need $88,800 (up 21.1%) to afford a $335,000 home. The three metros also had the biggest starter-home price increases, with prices up 15.8% year over year, 13.2% and 9.8%, respectively.
Meanwhile, starter-home prices are down year over year in 13 metros, mostly expensive West Coast markets, with the next-biggest declines in San Jose, CA (-8.7% to $925,000), Sacramento, CA (-7.3% to $417,000) and Oakland, CA (-7.3% to $630,000).
Starter-home prices also dropped in Las Vegas, Seattle, Denver, Los Angeles, Portland, OR, Anaheim, CA, San Diego, Riverside, CA, Pittsburgh and Minneapolis. However, in those places, lower prices often don’t make up for higher mortgage rates.
More than one-third (36.6%) of the country’s starter homes were purchased in cash in May, down just slightly from the previous month’s decade-high and up from 35.2% a year earlier.
Real estate investors are buying up a sizable chunk of today’s affordable homes. A record 41% of investor purchases were small homes–those with 1,400 or fewer square feet–in the first quarter. That’s up from 37% a year earlier.
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