“Americans need to earn more than a year ago—and much more than before the pandemic—to afford a starter home because mortgage rates are elevated and home prices are near record highs,” the report noted.
The typical household earns an estimated $83,966, which is just enough to afford a starter home. However, many people in the market for these homes earn less than the median income. A family earning 80% or less of the median income—$67,173 or below—would struggle to afford the typical starter home.
While wages are increasing, they aren’t keeping pace with the rising cost of homeownership. Average hourly earnings were up 3.6% year-over-year in July, but this lags behind the 4.4% increase in the income needed to buy a starter home.
The affordability of starter homes continues to decline. Around 70% of starter homes are now affordable to the median-earning household, down from about 73% a year ago and close to the record low.
Despite the financial challenges, starter homes remain in high demand. In July, pending sales of starter homes rose 10% year-over-year, reaching their highest level in nearly two years. This surge in demand, driven by lower-income families, middle-income families, and investors, is one reason why prices have hit record highs.
