Starter Homes Are Now Cheaper

• Buyers are required to earn $77,000 to be able to afford a typical starter home. This is down 0.4% year over year. It is the first annual decline since 2020 due to falling mortgage rates, with first annual decline since 2021.
• Today’s typical household reportedly earns $84,000. This is roughly 9% more than was needed to be able to purchase a typical first home.
• Starter homes are still much higher than pre pandemic levels. In 2019, typical households earned 57% more than was needed to afford a starter home.
• The four major metros where starter homes went from unaffordable to affordable in the last year are located in Texas and Florida.

Homebuyers reportedly need to make $76,995 yearly to afford a median priced beginner home ($250,000), down 0.4% year over year. This is the first decline since August 2020, where mortgage rates were closing in on record lows.

Homebuyers Need to Earn $77,000 Currently to Afford the Basic Beginner Home. This is the income to retain a beginner home payment relative to a 3.5% original payment.

Now, year over year beginner homes are above 4.2%, whereas an annual salary to afford a beginner home fell due to a drop in mortgage rates falling to cancel out an increase in home prices. Interest rates on a 30-year mortgage dropped to 6.5% in August, down from a 7.07% average from one year before and largest decrease in three years. We can even see that the rate has decreased to 6.08% currently. But, even now the average household income needed to be able to pay for a beginner home is 3.6% below the high of $79,857 from last fall (Redfin).

Post Pandemic Winners Are Seeing The Steepest Drops in Income Needed to Afford a Beginner Home

We’ve seen a trend in the towns that were high sought after post pandemic because of their quality of life no seeing the average annual salary needed to purchase a beginner home taking a noise dive, in the ironic sense. For example, Anaheim, CA average annual income is $217,300 to purchase a beginner home down 8.1% year over year. This has resulted in the largest decline in the top 50 metropolitan most populated cities. Also, Austin, TX, West Palm Beach, FL, Phoenix and Dallas saw large declines.

The home prices in these cities increased drastically during the pandemic as an enormous load of families moved into town, and are finally deflating. For example, Austin beginner home prices are down 3%, the highest decrease of all metropolitan cities.

The following is a chart showing the top 10 starter-home affordability by Metropolitan location

This chart shows the United States Metropolitan location, income needed to afford a home, income change to afford YoY, Median Home Price, Sales Price YoY, estimated household income, etc.

We can obvious see that the highest fluctuation seems to reside in the Mid-Western states. Predominately a conclusion can be drawn that with people leaving these areas during the post pandemic period moving to states with looser Covid19 policies making it better to live, we now see a high decrease in the cost of purchasing a beginner home. It can be speculated that the unemployment rate has spiked in these areas driving down the median price of a starter home. Whatever the case may be, with the Federal Reserve finally slashing rates with the highest in years of half a basis point the market looks hopeful to soften the blow. But pessimistically noting that after 10 of the past 14 parallel scenarios only 4 have not experience a recession in the U.S. economy.

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