US First-Time Homebuyers in February Needed to Earn 8.2% More Than a Year Ago to Afford a Starter Home

On Thursday, Redfin reported that US homebuyers, as of February, needed to earn $75,849 annually to afford the typical starter home. This is up 8.2%, or $5,767, from February 2023. The monthly payment for the typical starter home was $1,896 in February, also up 8.2% from a year earlier.

Starter homes are roughly half as affordable as they were before the pandemic. Americans needed to earn $40,465 annually to afford the typical US starter home in February 2020, when the median sale price was $169,000 and the average mortgage rate was about 3.5%.

The increase in income necessary to purchase a starter home from a year ago is due to rising prices and mortgage rates, Redfin said. The typical starter home sold for $240,000 in February, up 3.4% year-over-year, and the average 30-year fixed mortgage rate was 6.78%, up from 6.26% a year earlier.

Adding additional background and analysis to the report, Redfin Senior Economist Elijah de la Campa said:

“The pandemic housing-market boom changed the definition of a starter home. A decade ago, many people thought of a starter home as a small three-bedroom single-family house. Now that type of home could cost seven figures, especially in expensive parts of the country. The most affordable homes are much smaller and often require a lot of work to make them habitable—which makes them cost even more. Today’s most affordable homes are still hard for the average American to afford, let alone the average first-time buyer who tends to put less money down in exchange for higher monthly payments. Rising prices and mortgage rates are pushing buyers who earn more than the median income to buy starter homes, and often pushing buyers who earn less money out of the market.”