• Based on the latest renter income figures, starter home prices and mortgage rates, in October, renters in Los Angeles and New York only earned 30% and 34%, respectively, of the income they would need to buy a starter home.
• In 13 more of the 50 largest U.S. cities, renters earned less than half the income they would need to make the move from renters to homeowners.
• Renters in only 4 large U.S. cities (Detroit; Tulsa, OK; Memphis, TN; Oklahoma City) earned 100% or more than what they needed to afford an entry-level home.
• This very short list was all the more shocking because just one month prior, in September, it also included Kansas City, MO. And, one month before that, in August, Baltimore was also affordable for renters who wanted to make the move to homeownership.
• In only 15 of the 50 largest U.S. cities, the price of a starter home still fits the “old” definition of the term: Entry-level houses here were $200,000 or less.

Once upon a time, nearly 70% of all new builds were starter homes — single-family houses with 1,400 square feet or less that started at $6,990. But that was in the 1940s. Fast forward to 1980 and that share fell to 40%. Then, in 2019, the U.S. Census Bureau reported that a mere 7% of all new homes were represented by the small, entry-level homes that are affordable for first-time buyers — and the prices aren’t even remotely similar.

Due to the increasing cost of land, as well as zoning restrictions and skyrocketing costs for building materials, the modest, bare-bones homes of yesteryear have become the stuff of myths and legends — the actual unicorns of the real estate market. More elusive than ever, this type of home seems almost extinct.

• Based on the latest renter income figures, starter home prices and mortgage rates, in October, renters in Los Angeles and New York only earned 30% and 34%, respectively, of the income they would need to buy a starter home.
• In 13 more of the 50 largest U.S. cities, renters earned less than half the income they would need to make the move from renters to homeowners.
• Renters in only 4 large U.S. cities (Detroit; Tulsa, OK; Memphis, TN; Oklahoma City) earned 100% or more than what they needed to afford an entry-level home.
• This very short list was all the more shocking because just one month prior, in September, it also included Kansas City, MO. And, one month before that, in August, Baltimore was also affordable for renters who wanted to make the move to homeownership.
• In only 15 of the 50 largest U.S. cities, the price of a starter home still fits the “old” definition of the term: Entry-level houses here were $200,000 or less.

Once upon a time, nearly 70% of all new builds were starter homes — single-family houses with 1,400 square feet or less that started at $6,990. But that was in the 1940s. Fast forward to 1980 and that share fell to 40%. Then, in 2019, the U.S. Census Bureau reported that a mere 7% of all new homes were represented by the small, entry-level homes that are affordable for first-time buyers — and the prices aren’t even remotely similar.

Due to the increasing cost of land, as well as zoning restrictions and skyrocketing costs for building materials, the modest, bare-bones homes of yesteryear have become the stuff of myths and legends — the actual unicorns of the real estate market. More elusive than ever, this type of home seems almost extinct.

Further proof that starter homes are vanishing is their changing definition: They used to be the small, super-affordable houses that a young person or family could buy in order to get on the property ladder. But now, they’ve come to represent simply the cheapest homes available in a market, or homes that fall within the 5th to 35th percentile price range. And it’s not just renters and young families who are vying for them: Downsizing baby boomers, second homebuyers and property investors are in direct competition with first-time buyers for this dwindling housing segment.

However, scarce inventory is just the tip of the unaffordability iceberg: Rapidly rising prices and interest rates have even more serious consequences. So, to gauge the effect of the mortgage rate hikes on affordability, Point2 analysts reviewed data on the median price of a starter home and renter households’ median incomes in the 50 largest U.S. cities. They discovered that renters’ homeownership dreams don’t match the reality in almost any of the large U.S. housing markets.

When Is a Starter Home Not a Starter Home? When It Costs $1 Million

The median starter home in San Francisco costs as much as the median starter homes in the top 10 most affordable cities combined.

As expected, the quickly rising interest rates took a large bite out of renters’ already limited buying power in America’s most expensive markets. Even under this study’s ideal conditions (in which we assumed a 20% down payment was already covered), entry-level homes were still unaffordable for renters in the majority of large U.S. cities.

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For instance, in San Francisco, the average renter household made $100,715, but the amount a first-time buyer would need to comfortably cover mortgage payments was $251,190. This means that San Francisco renters are $150,475 (or 60%) short of making their homeownership dreams come true. Moreover, in three other cities (San Jose, CA; Los Angeles; and New York), renters were more than $100,000 short of the amount they would need to cover their mortgage on a starter home. In fact, Los Angeles renters had it the worst: They’re making 70% less than the amount they would need to comfortably cover their monthly mortgage.

• Based on the latest renter income figures, starter home prices and mortgage rates, in October, renters in Los Angeles and New York only earned 30% and 34%, respectively, of the income they would need to buy a starter home.
• In 13 more of the 50 largest U.S. cities, renters earned less than half the income they would need to make the move from renters to homeowners.
• Renters in only 4 large U.S. cities (Detroit; Tulsa, OK; Memphis, TN; Oklahoma City) earned 100% or more than what they needed to afford an entry-level home.
• This very short list was all the more shocking because just one month prior, in September, it also included Kansas City, MO. And, one month before that, in August, Baltimore was also affordable for renters who wanted to make the move to homeownership.
• In only 15 of the 50 largest U.S. cities, the price of a starter home still fits the “old” definition of the term: Entry-level houses here were $200,000 or less.

Once upon a time, nearly 70% of all new builds were starter homes — single-family houses with 1,400 square feet or less that started at $6,990. But that was in the 1940s. Fast forward to 1980 and that share fell to 40%. Then, in 2019, the U.S. Census Bureau reported that a mere 7% of all new homes were represented by the small, entry-level homes that are affordable for first-time buyers — and the prices aren’t even remotely similar.

Due to the increasing cost of land, as well as zoning restrictions and skyrocketing costs for building materials, the modest, bare-bones homes of yesteryear have become the stuff of myths and legends — the actual unicorns of the real estate market. More elusive than ever, this type of home seems almost extinct.

Further proof that starter homes are vanishing is their changing definition: They used to be the small, super-affordable houses that a young person or family could buy in order to get on the property ladder. But now, they’ve come to represent simply the cheapest homes available in a market, or homes that fall within the 5th to 35th percentile price range. And it’s not just renters and young families who are vying for them: Downsizing baby boomers, second homebuyers and property investors are in direct competition with first-time buyers for this dwindling housing segment.

However, scarce inventory is just the tip of the unaffordability iceberg: Rapidly rising prices and interest rates have even more serious consequences. So, to gauge the effect of the mortgage rate hikes on affordability, Point2 analysts reviewed data on the median price of a starter home and renter households’ median incomes in the 50 largest U.S. cities. They discovered that renters’ homeownership dreams don’t match the reality in almost any of the large U.S. housing markets.

When Is a Starter Home Not a Starter Home? When It Costs $1 Million

The median starter home in San Francisco costs as much as the median starter homes in the top 10 most affordable cities combined.

As expected, the quickly rising interest rates took a large bite out of renters’ already limited buying power in America’s most expensive markets. Even under this study’s ideal conditions (in which we assumed a 20% down payment was already covered), entry-level homes were still unaffordable for renters in the majority of large U.S. cities.

For instance, in San Francisco, the average renter household made $100,715, but the amount a first-time buyer would need to comfortably cover mortgage payments was $251,190. This means that San Francisco renters are $150,475 (or 60%) short of making their homeownership dreams come true. Moreover, in three other cities (San Jose, CA; Los Angeles; and New York), renters were more than $100,000 short of the amount they would need to cover their mortgage on a starter home. In fact, Los Angeles renters had it the worst: They’re making 70% less than the amount they would need to comfortably cover their monthly mortgage.

If affordable cities are becoming unaffordable overnight, unaffordable urban hubs are simply moving further into the realm of unaffordability. To that end, in October, renters in 15 cities earned less than 50% of what they needed to afford a starter home. This was much more than in August, when renters in only 11 cities were in this situation.

Granted, that’s not to say that renters who earn more than 50% of the income needed to afford an entry-level home are in an enviable position. In fact, their situation might be worse than that of renters in completely unaffordable markets, who definitely know that they aren’t — and probably never will be — able to afford a home.

Earning 70% or 80% of the income they need to comfortably cover their monthly payments keeps renters in a tense, frozen decisional space — their very own housing limbo. In this case, the question of whether they should or could make the switch to homeownership doesn’t have a clear no or a clear yes.

What a Difference a Month Makes: Affordability Window Closes Overnight for Renters in Kansas City, MO & Baltimore

In August, when interest rates were hovering around 5.5%, renters in 6 large U.S. cities could comfortably afford to buy a starter home. One month and an interest hike later, that number swiftly fell to 5… and then 4.

What does it mean that renters could comfortably afford to buy a starter home? Well, the accepted rule is that a mortgage payment should not exceed 30% of your gross monthly income. Accordingly, after calculating how much the mortgage would be in each of the 50 cities (taking into consideration the median price of a starter home and assuming a 20% down payment), we calculated a renter’s required income and compared it to their actual income. The result? Renters in only four cities earned enough to cover their monthly mortgage payments.