Average American Can't Afford Starter Homes $20K Above Their Budget, Warns Real Estate Analyst

Homebuyers in the U.S. now face a financial hurdle that's proving tough to clear. A new Redfin report reveals that Americans must earn nearly $80,000 annually to afford a typical starter home. This figure is around $20,000 more than the average household income, as the U.S. Bureau of Labor Statistics (BLS) reported. 

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In July, the average monthly payment for a starter home reached $1,981, marking a 4.4% rise compared to last year. To comfortably manage these payments, buyers must bring in at least $79,252 annually – another 4.4% jump from the previous year. "It's a daunting number for many," said a Redfin analyst, noting that this figure is now inching close to the all-time high set last October.

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The BLS reports that the average American worker earns about $1,143 a week, equating to roughly $59,436 annually. This places the typical household income about $20,000 shy of what's required to purchase a starter home, leaving a widening gap between home prices and wages. "Rising mortgage rates and home prices are squeezing people out," Redfin's study confirmed.

Before the pandemic, buying a home was far more affordable, but the recent cost surge has caused many middle-income families to shift their focus to starter homes. The report stated that this shift has effectively "pushed lower-income families out of the market altogether." 

In more than half of the country's major cities, the median local income isn't enough to buy a starter home, according to Redfin's findings. California, in particular, faces the largest affordability gap. In places like Anaheim, homebuyers must earn more than twice the local median income to afford a modest home. 

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A family earning Anaheim's median income of $122,192 would still fall well short of the $251,302 required for a starter home. In Los Angeles, where the median income is $93,197, homebuyers need $184,477 to purchase a similar property. 

This has led to fierce competition, especially in more affordable markets. Ben Ambroch, a Redfin agent in Milwaukee, described the situation as "a battle." Homes listed in the $150,000 to $350,000 range, which might have once been easily accessible to first-time buyers, now attract multiple offers.

 "We listed a home for $210,000, and it got multiple bids," said Ambroch. "One buyer even offered the seller pizza every Friday until the deal closed. It didn't work, but that's the level of competition right now."

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Despite these challenges, there are signs of hope. The number of starter homes on the market grew by nearly 20% in July compared to last year. And while mortgage rates remain high, they are slowly dropping. Freddie Mac reported that the average weekly mortgage rate stood at 6.35% as of Aug. 29, down from 7.18% the previous year. 

Additionally, while prices continue to rise, the rate of increase is slowing down. Redfin pointed out that the 4.4% growth in starter home prices is among the smallest since 2021. Last year, prices had risen by a staggering 14%. Though the climb is far from over, the slower pace offers a glimmer of optimism for hopeful buyers looking to enter the market.

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