First-time homebuyers are being priced out of America’s turbulent housing market. Low supply, high interest rates, and even higher list prices combine to create one of the most unaffordable markets in history. A new study finds that the first-time buyer needs an income of nearly $120,000 to afford the median-priced home in America.
According to Clever Real Estate, 44 of America’s 50 largest metros don’t have homes considered affordable. A home is considered affordable if it doesn’t cost more than 28% of a household’s yearly income. In all but six U.S. metros, the average yearly income isn’t enough to buy, even with a 20% down payment. One expert advises first-time homebuyers that this is not the year to buy that “dream home.”
“Price growth may cool slightly in the coming months if mortgage rates stay high or rates might fall slightly—but overall housing costs are likely to remain elevated for the foreseeable future.”
Chen Zhao, Redfin Economic Research Lead
Priced Out of The Market
At this time, mortgage rates are over 7% which deters many buyers from entering the market. However, experts have identified something called the “lock-in” effect. Many bought or refinanced homes and locked-in rates under 4% and are now unwilling to give that up. This effect combined with low numbers of affordable options under construction are a few factors pricing first-time homebuyers out of the market.
In a few metro areas, buyers have found some affordability in the face of increasing market challenges. The budget goes the furthest in the following metro areas:
Pittsburgh, Pennsylvania
Cleveland, Ohio
St. Louis, Missouri
Indianapolis, Indiana
Memphis, Tennessee
Birmingham, Alabama
On the other hand, the most unaffordable metro areas are:
Los Angeles, California
San Jose, California
San Diego, California
San Francisco, California
New York, New York
Miami, Florida
Additionally, only four states have affordable markets for first-time homebuyers: West Virginia, Ohio, Iowa and Indiana.
Advice for First-Time Homebuyers
Again, many potential first-time homebuyers have been priced out of the current market. While they can’t afford to buy, the cost to rent isn’t necessarily cheap. The most recent data compiled shows the average price to rent a property hovers around $1,900. Obviously, that isn’t affordable for many families across America. However, one study recently found renting is still 37% cheaper than buying in all 50 of America’s largest metro areas.
The price of a home is more than double the cost for the same house in 2019. Still, nearly four out of five say owning a home is part of “The American Dream.” Experts recognize this and advise potential first-time buyers to start the process if they can afford to, but don’t rush! Do some research to determine where you want to live and consider how owning a home builds generational wealth.
