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Starter homes are generally thought of as the first home a family can purchase, so they tend to be smaller and cheaper than other homes listed for sale. But due to homeownership costs, the starter home is becoming the “stuff of myths,” according to Point2.
For the purposes of Point2’s analysis, starter homes are those valued in the bottom third of all homes available in a given market. To measure affordability, the study follows the common personal finance rule that a mortgage payment shouldn’t exceed 30% of a homeowner’s gross monthly income.
Here’s a closer look at the four cities where starter homes are actually affordable for those earning the area’s median household income.
Median annual income: $25,004
Income needed to afford a starter home: $19,103
Median starter home price: $48,129
Median annual income: $35,039
Income needed to afford a starter home: $29,521
Median starter home price: $95,481
Median annual income: $30,093
Income needed to afford a starter home: $27,966
Median starter home price: $87,174
Median annual income: $37,211
Income needed to afford a starter home: $37,071
Median starter home price: $126,442
Aside from a chronic shortage of housing that predates the Covid-19 pandemic, supply constraints and growing costs for building materials have contributed to increasing home prices, says Lawrence Yun, chief economist at the National Association of Realtors.
And with home prices up by nearly 30%, “we know for sure people’s incomes have not risen by 30%,” he says.
The market will likely remain discouraging, at least until mortgage rates drop and the supply of homes catches up with demand, says Yun. Unfortunately for potential homebuyers, home building has slowed recently due to economic uncertainty.
“The starter home market has become increasingly difficult over the past 20 years,” says Yun. This has created a “social divide” between homeowners and non-homeowners, who “simply feel like they cannot catch up.”
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This article was originally published by a www.cnbc.com . Read the Original article here. .