Starter Homes More Attainable

SEATTLE – (By Dale King, Realty News Report) – Starter homes are becoming more attainable as mortgage rates have softened and the inventory of homes for sale has expanded in many places.

A new Redfin report says starter-home prices have actually increased 4.2 percent year-over-year. But the incoming revenue needed to afford that type of residence fell because mortgage rates dropped enough to offset the increase in prices.

The Freddie Mac mortgage survey said 30-year mortgages averaged 6.44 percent last week, down from 7.63 percent a year ago.

Redfin’s report says typical U.S. homebuyers need to earn $76,995 per year to cover the cost of a median-priced starter-home ($250,000), down 0.4 percent year-over-year. That’s the first annual decline since August 2020 when mortgage rates were approaching a record low.

But Redfin advises potential buyers to proceed with caution. “It’s great news that starter-homes are becoming a little more affordable, but there’s a catch,” said the real estate firm’s senior economist, Elijah de la Campa. “Starter-homes aren’t what they used to be. A decade ago, a turnkey four-bedroom house in a nice neighborhood was often considered a starter-home, but today, a small, fixer-upper condo is often all a first-time homebuyer can afford. The American Dream is changing; for many, it no longer involves a house and a white picket fence.”

The average household these days earns an estimated $83,853 per year — 8.9 percent more than folks need to pay for a median priced starter-home. That’s an improvement from last August when the typical household earned only 3 percent more than the amount needed to make a starter-home purchase succeed.

But still, that’s a setback from the time before the pandemic, the report says. In August 2019, the typical household earned 57.1 percent more than needed to afford the median priced starter-home, and in August 2012, families earned 113 percent more than needed — or more twice as much as necessary to make a starter-home their personal residence.

A growing supply of homes for sale is making home buying easier and placing a bit of downward pressure on prices. In Houston, for example, 48,749 homes were listed for sale in September, a 25 percent increase over the listings in September of 2023, according to the Houston Association of Realtors.

Housing prices skyrocketed during the pandemic home buying frenzy as a severe shortage of residences for sale coincided with a surge in demand fueled by record-low mortgage rates. Starter-home prices are now 51.1 percent higher than they were in August 2019 and 163 percent higher than they were in August 2012.

Also, Redfin says, home prices have risen much faster than incomes, which are now 33.4 percent higher than they were in 2019 and 58.1 percent above what they were in 2012. In other words, the incoming revenue needed to afford a starter-home has tripled since 2012 while median household income hasn’t even doubled.

The average interest rate on a 30-year mortgage fell to 6.5 percent in August 2024 from 7.07 percent a year earlier, the first annual decrease in three years. It has since declined further and now sits at 6.08 percent. Still, the income needed to afford a starter-home is only 3.6 percent below the record high of $79,857 set last fall.

Redfin warns house hunters to be aware that starter-home affordability may not improve much more, if at all, in the near future. The Federal Reserve’s latest interest rate cut and its plans for future cuts were highly anticipated, meaning they are mostly priced into mortgage rates already.

When the Fed cuts short-term interest rates, long-term rates like mortgage rates don’t always move down nearly as much, says the real estate brokerage. Home prices also tend to rise over time, so waiting to buy likely means a higher price tag and down payment.

The Redfin report does include some data that should make those searching for homes in two Southern states smile. Four metropolitan areas – two in Texas, two in Florida — saw starter-homes nudge from unaffordable in 2023 to the affordable category in 2024. That means a household on the median income roster would now need to spend less than 30 percent of their earnings to buy the typical starter-home in those communities. Dallas went to 29.1 percent from 32.1 percent. Fort Worth dropped to 28.3 percent from 30.2 percent.

In West Palm Beach, a household on median income would spend just 28 percent of their yearly earnings to purchase a median priced starter-home, down from 31 percent last August. Fort Lauderdale went to 28.2 percent from 30.9 percent.

THE RALPH BIVINS PROJECT PODCAST

LISTEN: THE RALPH BIVINS PROJECT with Kris Larson of Downtown Houston +

LISTEN: THE RALPH BIVINS PROJECT with Jim Carman of Howard Hughes Holdings

LISTEN: THE RALPH BIVINS PROJECT with Jeff Havsy of Moody’s Analytics

LISTEN: THE RALPH BIVINS PROJECT with Sam Scott of CommGate

LISTEN: THE RALPH BIVINS PROJECT with John S. Moody, Jr. of Moody Law Group

LISTEN: THE RALPH BIVINS PROJECT with Scott Martin of Granite Properties

LISTEN: THE RALPH BIVINS PROJECT with Robert Clay of Clay Development

LISTEN: THE RALPH BIVINS PROJECT with Alma Zavala of CommGate

LISTEN: The RALPH BIVINS PROJECT with Adam Lair of Partners Capital

LISTEN: The RALPH BIVINS PROJECT with Jake Donaldson of Method Architecture

LISTEN: The RALPH BIVINS PROJECT podcast with Bill Baldwin of BLVD Realty