WASHINGTON —
As the rise in home prices outpaces income, many first-time buyers don’t earn enough to afford a starter home.
The latest data from the National Association of Realtors showed that the monthly mortgage payment for a typical starter home in the U.S. was $2,158. That would require a first-time buyer to earn an income of at least $103,584, factoring in interest rates and down payment.
But nationally, the median income for first-time buyers is short of that at about $72,100.
A starter home is often described as a smaller home purchased by a first-time buyer with the goal of getting into the market, but defining it with data is more complex.
The National Association of Realtors defines it as homes that are 85% of the median home value. But first-time home buyers are actually only able to afford homes that are about 60% of the median home sale price.
“There is a pretty big gap between what we traditionally call a starter home and what many first-time buyers can actually afford,” Nadia Evangelou, a principal economist and director of real estate research for the National Association of Realtors, said.
The National Association of Realtors calculates a home affordability index for first-time buyers using the 85% data point and income data.
When the index is above 100, it means starter homes are affordable for a family earning the median income. It’s been below 100 since around 2021.
The recent trend of low affordability for first-time buyers, isn’t because there’s a shortage of starter homes, Evangelou said. There’s more starter homes today than there were 20 years ago.
The high cost of rent prevents people from saving. Plus interest rates have also risen to 7.28%.
Evangelou also pointed to the age of the typical owner of starter homes, which is 59.
“For many people, their starter home became their long-term home,” Evangelou said.
The difficulties reflect consumer sentiment as well. About 9 in 10 young adults say it’s more difficult for young people to buy a home than it was for their parents, according to the Pew Research Center.
Affordability at the national level looks a lot different from the local level.
The Get the Facts Data Team analyzed data from the National Association of Realtors on first-time buyer housing affordability by metro area. The data includes an analysis of 177 metropolitan areas in the U.S.
About 80% of the metro areas had affordability scores for first-time buyers below 100, meaning people made a median income less than qualifying income needed to buy a starter home.
See how affordable your city is in the interactive below.