Typical Starter Home $20K More Expensive Than Average American Can Afford

American homebuyers must now earn almost $80,000 per year to afford a typical starter home in the U.S., a recent Redfin report said—about $20,000 more than the average household earns annually, according to U.S. Bureau of Labor Statistics estimates.

The real estate brokerage reported that the monthly housing payment for a typical U.S. starter home sold in July was $1,981, up 4.4 percent compared to a year earlier. That means a buyer must earn $79,252 per year to afford such a home, also up 4.4 percent compared to July 2023 and close to the all-time high reached in October.

BLS data showed that American workers earned a median wage of $1,139 per week in the first quarter of 2024, which would amount to $59,228 per year. In the second quarter, they earned an average of $1,143 per week, which would add up to $59,436 annually. As these estimates indicate, the average American earns about $20,000 less than the cost of a typical starter home.

The cost of buying a starter home is now much higher than it was before the COVID-19 pandemic hit the U.S., mainly because of higher mortgage rates and higher home prices. “Rising prices have pushed many middle-income Americans to buy starter homes, and pushed many lower-income households out of the market altogether,” the Redfin report said.

The Redfin study, which is based on an analysis of estimated U.S. incomes and median monthly housing payments for starter homes sold in July, calculated the typical U.S. household’s annual income as a much higher sum: $83,966, slightly more than what’s needed to buy a starter home.

In half of the 50 most populous U.S. metropolitan areas, a family earning the local median income can’t afford to buy a starter home, Redfin reported. California has the largest affordability gap for starter homes in the country. In cities such as Anaheim and Los Angeles, homebuyers need to earn twice the local income to afford a starter home.

In Anaheim, the median income is $122,192, but a family needs to earn $251,302 to afford a typical starter home in the city. In Los Angeles, an average family earns a median income of $93,197 but needs to earn $184,477 to buy a starter home.

Increased competition for starter homes has made them into a “hot commodity,” as Redfin described it, that both lower-income and middle-income households are fighting for.

“There are neighborhoods here that are both desirable and affordable, with homes selling in the $150,000 to $350,000 range. But first-time buyers are struggling because those homes typically get at least five offers,” said Ben Ambroch, a Redfin Premier agent in Milwaukee.

He continued: “I recently listed a house for $210,000 and it received several bids, one of which included an offer to buy the seller pizza every Friday night until the deal closed. We ended up going with a higher offer, but that’s an example of the creativity we’re seeing as buyers compete for starter homes.”

While affordability remains strained, American homebuyers have reason to believe the future may be a bit brighter.

Listings of starter homes were up almost 20 percent nationwide in July compared to a year earlier. Mortgage rates are coming down, though not as quickly as many might have wished for: The average weekly mortgage rate was 6.35 percent as of August 29, according to Freddie Mac, down from 7.18 percent a year earlier.

While the cost of buying a starter home is increasing, it’s still growing at a much slower pace than it was last year. According to Redfin, the 4.4 percent year-over-year increase is “one of the smallest since the start of 2021.” A year earlier, the increase was 14 percent.