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For many would-be homeowners, the financial hurdle to buying a starter home has grown dramatically over the past seven years. The income needed to afford a typical starter home has jumped more than 80% since 2019, according to a new Realtor.com report.
Americans now need an annual household income of about $78,000 to afford a typical starter home, up from roughly $43,000 in 2019—an increase that has far outpaced wage growth and left many first-time buyers struggling to break into the housing market.
“First-time buyers aren’t sitting on the sidelines because they don’t want to own a home—it’s because, for many of them, it’s just not possible right now,” Hannah Jones, senior economist at Realtor.com, told Digital.
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Housing experts argue that expanding homebuilding is one of the most effective ways to improve affordability. (David Paul Morris/Bloomberg via Getty Images)
The analysis paints a mixed picture for first-time buyers. While the supply of starter homes has slowly improved since bottoming out during the pandemic housing crunch, elevated mortgage rates, higher home prices and a lingering shortage of affordable listings continue to keep many aspiring homeowners on the sidelines.
The recovery has also been uneven, creating sharply different conditions depending on where Americans are looking to buy.
A wave of new construction has helped fuel the strongest recovery in starter-home inventory across the South and West, according to Jones, while buyers in much of the Northeast continue to face rising prices and limited supply. Builders in those regions have increasingly focused on smaller homes and lots, she said, helping expand the supply of entry-level housing and better match what first-time buyers are looking for.
The South has experienced the strongest turnaround of any region, adding nearly 170,000 affordable listings since the market bottomed out in 2022. Starter-home prices there have also declined 3.5% from their pandemic peak.
“Buyers in parts of the South and West are seeing more homes in their price range, while much of the Midwest remains relatively affordable compared with the rest of the country,” Jones said.
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The West has seen the biggest improvement in affordability since the pandemic housing boom. Starter-home prices have fallen 7.3% from their 2022 peak, led by markets such as Denver, Phoenix and Colorado Springs, according to the report.
The Northeast has moved in the opposite direction.
Realtor.com found the typical starter home now costs about $444,000 in the Northeast, with prices climbing 12.6% since 2022 alone.
Meanwhile, the Midwest remains the country’s most affordable region in absolute dollar terms, although affordability there has also begun to erode as prices continue climbing. More than half of homes listed in the Midwest still fall below the $350,000 threshold, giving buyers more options than elsewhere in the country.
States that prioritize homebuilding and reduce regulatory barriers are generally better positioned to expand housing supply and improve affordability. (Kevin Carter/Getty Images)
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Even as inventory has improved, many first-time buyers remain priced out. Realtor.com found purchases of homes priced below $350,000 fell about 10% in April compared with a year earlier, suggesting higher borrowing costs—not just limited supply—remain one of the biggest obstacles facing would-be homeowners.
Jones said many prospective buyers are waiting for mortgage rates to ease or for more inventory to come onto the market before taking the plunge into homeownership.
