According to a recent report by Redfin, first-time homebuyers in the United States now need higher earnings compared to last year in order to afford a starter home. The report states that the necessary annual income to cover a starter home is approximately $64,500, which is about $7,200 higher than last year.
The increase in income requirements can be attributed to two factors: rising home prices and mortgage rates. The sale price of the type of home typically sought after by first-time buyers increased by 2.1% compared to the previous year, reaching $243,000. Additionally, there has been a limited supply of starter homes, with new listings experiencing a 23% decrease in June.
Sheharyar Bokhari, a senior economist at Redfin, explains that the combination of rising prices and rates has made the most affordable homes no longer within reach for those with lower budgets. In many parts of the country, there is a shortage of affordable starter homes, making it difficult for buyers to find suitable options.
The overall housing market has also been impacted by the limited supply of homes. A recent Realtor.com report reveals that there were over 47% fewer available homes in June compared to pre-pandemic levels. This shortage has further driven up home prices.
Mortgage rates have also played a role in the affordability of homes. Redfin reports that the average mortgage rate in June was around 6.7%, compared to 5.5% in the same period last year. The Federal Reserve's efforts to combat inflation have led to a steady climb in interest rates over the past year.
In terms of specific cities, Fort Lauderdale, Florida, saw the largest increase in the income level needed to afford a starter home, with a 28% jump to $58,300. However, San Francisco, Phoenix, and Austin were the only major U.S. metros where income requirements decreased.
Overall, first-time homebuyers are facing higher income requirements due to rising home prices, limited supply, and increasing mortgage rates. This trend highlights the challenges that prospective homeowners are currently facing in the U.S. housing market.