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A household must earn $75,849 per year to afford the typical starter home in the United States, a significant increase driven by higher home prices and mortgage rates. While affordability hit a historic low in late 2023, there are signs of gradual improvement as mortgage rates have retreated from their peaks. This analysis, based on February 2024 data, reveals that the income required is now 8.2% higher than a year ago, underscoring the persistent challenges for first-time homebuyers.
For this report, a starter home is defined as a property whose sale price falls within the 5th to 35th percentile of the U.S. market. This represents the most affordable segment of homes available for sale. A home is considered "affordable" using a standard industry rule of thumb: a household should not spend more than 30% of its gross income on housing costs. This calculation assumes a 3.5% down payment, common for FHA loans popular with first-time buyers.
The monthly housing payment for the typical starter home in February was $1,896. This payment includes the mortgage principal, interest, property taxes, homeowners insurance, and mortgage insurance.
The jump in the necessary income—from $70,082 in February 2023 to $75,849 in February 2024—is a direct result of two key factors:
The combined effect of these increases means affordability has been cut in half since before the pandemic. In February 2020, an income of just $40,465 was needed to afford a typical starter home priced at $169,000 with a mortgage rate of approximately 3.5%.
| Year | Required Income | Median Starter Home Price | Avg. Mortgage Rate |
|---|---|---|---|
| Feb 2020 | $40,465 | $169,000 | ~3.5% |
| Feb 2023 | $70,082 | $232,000 | 6.26% |
| Feb 2024 | $75,849 | $240,000 | 6.78% |
The median U.S. household income is estimated to be $84,072, which is higher than the $75,849 required. This means the typical household can technically afford a starter home. However, the financial cushion is much smaller than in the past. Currently, the median income is only 11% higher than the required income, compared to a 63% buffer in February 2020. This leaves families with significantly less disposable income after their housing payment.
The situation is even more difficult for lower-income families. A household earning 80% of the median income—approximately $67,258—cannot afford the typical starter home today. Before the pandemic, a household at that same income level could comfortably afford a starter home.
Yes, there are cautious signs of improvement. While the income required is up from a year ago, it has fallen 8% from an all-time high of $82,373 in October 2023. This is because mortgage rates have declined from a two-decade high of nearly 7.8% last fall. If rates continue to gradually decline throughout 2024 as predicted, affordability should continue to improve.
Other encouraging signs include:
Based on our experience assessment, first-time buyers should focus on getting pre-approved to understand their true budget and be prepared to act quickly in a competitive market. The most affordable homes often attract multiple offers, including all-cash bids from investors.
