Entry-level homes are getting easier to afford at a faster clip than the housing market as a whole, and the reason comes down to something most buyers wouldn’t expect: the priciest homes in the country are getting more expensive at almost double the rate of starter homes, dragging up the national average while leaving the bottom of the market comparatively calmer.
That’s the core finding of Redfin’s own analysis, which reports that the annual income needed to comfortably afford a typical U.S. starter home fell to $70,693, down 1.5% from a year earlier. The income needed to afford a typical home of any size fell too, but by far less, dropping just 0.5% to $109,796. Redfin has now tracked eight consecutive months of improving starter-home affordability.
The Gap Is Actually Widening
The typical U.S. household earns about $87,599 a year, according to Redfin’s report, which puts that household roughly $17,000 above what’s needed to afford a starter home, up from a surplus of about $12,500 the year before. Redfin’s data shows starter-home prices rose 1.2% year over year, while prices across all homes rose 2.2%, more than double that pace.
Where the Improvement Shows Up Most
The share of starter-home listings that a median earner could actually afford rose to 71.4%, up from 64.7% a year earlier, per Redfin’s figures. In 22 major metro areas, effectively all starter-home listings are now affordable to a household earning the local median income, while in the Los Angeles metro, a household needs to devote 51% of its income just to afford a starter home there.
Redfin senior economist Yingqi Xu said in the company’s own report that affordability has improved modestly for entry-level buyers, but starter homes come with tradeoffs, noting move-in-ready starter homes are drawing stronger demand than fixer-uppers among budget-conscious first-time buyers.
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