What a difference a year makes – according to Redfin (NASDAQ:RDFN), a first-time homebuyer must earn roughly $64,500 per year to afford the typical “starter” home, up by $7,200 or 13% from one year earlier.
Redfin reported the typical starter home sold for a record $243,000 in June, up 2.1% from one year ago and up more than 45% from before the pandemic. Complicating matters further are mortgage rates, which averaged 6.7% in June compared to 5.5% in June 2022 and just under 4% before the pandemic.
But that only counts if you can find a starter home. Redfin added that new listings of starter homes for sale dropped 23% year-over-year in June, the biggest drop since the start of the pandemic. 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, sales of starter homes fell 17% year-over-year in June.
The only major metros where starter-home buyers need less income than they did a year ago are San Francisco, Austin and Phoenix. 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%. The median sale prices in those markets were also in decline: 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.
“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.”
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