Affordable homes for first-time buyers are gone

DUSTIN JONESAugust 11, 2023

With mortgage rates still at a whopping 7%, many’s hopes of securing their first home have faded.

The current average for an entry-level home is $243,000 — and that price has become prohibitive for many Americans, if they can find an entry-level home at all in the current high demand.

Calculating the national average, first-time homebuyers need to earn at least $64,500 per year to cover the cost of an entry-level home while ensuring it doesn’t exceed 30% of their income Real estate agent Redfin.

Average required earnings increased by 13% ($7,200) year-over-year.

The record price of $243,000 is up 2.1% year-on-year and more than 45% compared to before the coronavirus pandemic.

“Buyers looking for entry-level homes in today’s market are looking for an entry-level home because in many parts of the country there is no such thing as an entry-level home anymore,” said Sheharyar Bokhari, chief economist at Redfin, in the report. “The cheapest homes for sale are no longer affordable for those on a tighter budget due to the combination of rising prices and rising interest rates.”

During the pandemic, real estate prices skyrocketed due to low mortgage rates and remote working, marking the beginning of the home affordability crisis.

Someone looking to buy a typical entry-level home today would have to pay a monthly mortgage payment of $1,610, up 13% from a year ago and nearly double what it was just before the pandemic.

“This shuts many Americans out of the real estate market altogether, preventing them from building equity and ultimately building lasting wealth,” Bokhari said. “People who already own homes are doing comparatively well because most of them have benefited from the rapid rise in home values in recent years. That could lead to the prosperity gap in this country becoming even more drastic.”