First-Time Homebuyers May Need To Flock To Memphis For Affordable Housing: '55 Percent Of Homes Were Affordable'

The dream of homeownership is slipping away for many Americans, but Memphis is bucking the trend.

In a housing market that has become a nightmare for first-time buyers, Memphis stands out as the only major U.S. city where more than half the homes for sale are within reach of median-income renters, according to a recently issued report from First American Financial Corporation.

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The numbers are clear. Nationally, just 29% of homes on the market in early 2024 were affordable for the typical renter hoping to buy. That’s down from 34% a year earlier. But in Memphis, 55% of homes were affordable for median renters. The next best markets — Cleveland, Louisville, and Pittsburgh — didn’t crack 50%.

"At the beginning of the year, we predicted affordability may end 2024 modestly higher than at the end of 2023," First American chief economist Mark Fleming noted in a separate report. Fleming said that sticky inflation has led the Federal Reserve to have a ‘higher for longer' outlook on interest rates, contributing to an "elevated outlook on mortgage rates," coupled with home prices remaining high on a broad level. 

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However, that broad-based unaffordability is missing in Memphis. As of July 2024, the average home value in Memphis is $152,280, according to data from Zillow, marking a 2% decrease from the previous year. Nationally, the average home value was $419,300 in May 2024. First American noted that while housing affordability is low for potential first-time homebuyers, "slowing price appreciation" in Memphis enhances its affordability edge.

The price point isn’t just attracting first-time buyers; it’s attracting investors, many of whom are Millennials, according to WeAreMemphis, a local news and culture website.

Millennials are often priced out of homeownership in larger markets, but according to First American data, they are increasingly viewing Memphis as an investment opportunity. The city’s renter-occupied housing rate is 53%, much higher than the national average of 34.8%.

The high proportion of renters, combined with relatively low purchase prices, creates a compelling case for would-be landlords.

First American’s report identified Memphis, Cleveland, and Louisville as areas where millennial first-time homebuyers have the best outlook for homeownership. Its methodology defines an affordable market as one where the median renter can afford 50% or more of the homes for sale. 

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In contrast to Memphis, in Los Angeles, only 1% of homes were affordable to the median renter. San Diego (2%), San Francisco (3%), San Jose (3%), and Sacramento (4%) round out the bottom of the list, according to First American. In perspective, in Los Angeles, the median renter’s house-buying power was just over $280,000, while the median sale price was $920,000.

First American’s analysis also found that home prices alone do not tell the whole affordability story. Some markets with relatively high median house prices, like Baltimore and Chicago, were considered more affordable than lower-priced markets like Oklahoma City and St. Louis. The key, according to the report, is the share of homes for sale that fall within the renter’s house-buying power.

Looking ahead, First American’s House Price Index shows that annual house price growth has slowed for five consecutive months, which is good news for potential first-time homebuyers. "The dream of homeownership isn’t boarded up just yet," deputy chief economist Odeta Kushi said in the report. 

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