Starter Homes In Major Cities Out Of Reach Of Most Renters Seeking Their First Home Amid Vanishing Inventory


First-Time Buyers, Second Thoughts: Starter Homes Long Past Affordability, Even in Secondary Markets
Amid vanishing starter home inventory, renters dreaming of homeownership are priced out of secondary cities they might’ve flocked to years ago

  • Compared to October 2022, when we first released our study about how much renters would need to earn to afford a starter home, NYC renters are in a slightly more favorable position, although buying a starter home is still challenging.
  • With home prices seeing even double-digit dips in some cities, it’s natural that starter home prices are also decreasing. Back in September, the average NYC starter home was around $544k, but now it reached $465K.
  • In 41 of the 100 largest secondary cities in the U.S., renters earn half or less than half of the income they would need to buy a median-priced starter home.
  • There are no non-core cities in which renters could comfortably make a move toward homeownership: In 10 cities, the necessary income is about triple what they earn.
  • Would-be buyers in Burbank and Glendale, CA have it worst: They lack 67% of the income they would need in order to make the move from renter to homeowner.
  • Renters in 9 California cities would need to earn about $100,000 more in order to afford a starter home. Based on the latest renter income figures, starter home prices, and mortgage rates, non-core cities in the LA and San Diego metros are the toughest for first-time homebuyers.
  • In 15 of the 100 largest secondary cities, renters would need less than 4 months’ worth of extra income to afford the transition to owning a starter home.
  • Homeownership is within reach in Independence, MO, and Broken Arrow, OK. Those who dream of owning here would need less than one month’s worth of extra income to afford a starter home.

The first step up the property ladder used to come with a supportive push from an accommodating inventory of starter homes. But, that was decades ago when a home up to 1,400 sq.ft. was just the gateway to the then-achievable American Dream. Ever since, it’s not just the concept of a starter home that’s pretty much disappeared, but the home itself — in main markets, as well as secondary ones.

A previous Point2 analysis brought to light the starter-home crisis and the altered contemporary definition of the once-super-affordable housing option. As inventory shrunk gradually, but surely, what used to be entry-level homes fit for young people or new families have come to simply describe the cheapest listings around. The share of starter homes built has been cut in half since the beginning of the century — from an already alarming 13% in 2001 to a meager 7% in 2021. And it’s not just the country’s core markets that have contracted a starter home deficiency.

With main markets no longer an option for first-time buyers, Point2 looked at the country’s 100 largest secondary cities for the median price of a starter home and renter households’ median income. Defined as large non-core cities within a metro, these cities used to be fruitful house-hunting grounds for first-time buyers exploring less-expensive options away from main cities. But as it turns out, unaffordability can put a dent in homeownership plans regardless of city type or size.

That’s because secondary cities — orbiting the principal cities within their respective metros — have seen increased competition from real estate investors, second-home buyers, and even downsizing Baby Boomers. As a result, this pushed the already scarce affordable options even further out of reach of those looking to get on the property ladder. Add sky-high prices and interest rates to the mix and you’ve got the recipe for postponing buying and renting until further notice — which is the case for the vast majority of Americans navigating today’s housing market

Renters in 41 of the 100 Largest Secondary Markets Make at Least 50% Less Than the Amount Necessary to Cover a Mortgage

California unaffordability extends to its non-core cities: Income needed for mortgage triple the average renter’s household income

The skewed definition of a starter home is experienced firsthand when simply browsing through listings and taking in the latest prices. For instance, in the country’s 100 largest secondary cities, first-time buyers face median prices ranging from less than $150,000 in Independence, MO, and Joliet, IL to nearly $953,000 in Fremont, CA.

At the same time, skyrocketing interest rates have put renters’ homeownership plans on hold across the country. And, the prospects look bleak even when assuming that the 20% down payment is covered and that the monthly spending (mortgage, insurance, and property tax) doesn’t represent more than 30% of a renter’s household income.

In 41 non-core cities, renters earned at least 50% less than what they would need to comfortably cover their monthly payments as first-time buyers. Unsurprisingly, California (and, particularly the Los Angeles-Long Beach-Anaheim metro area) had some of the most unaffordable starter homes — and we’re not even talking about the main cities in the bustling metro. In 13 of the 39 California cities included in the analysis, the renter household income was 60% to 67% lower than the income needed to cover a monthly mortgage for a starter home.

Take Burbank, CA. In this secondary city of the LA metro, the average renter household income was $63,127, but the amount needed to cover mortgage payments was triple that at $192,616. This means that the average first-time buyer in Burbank is $129,489 (or 67%) short of comfortably affording a starter home. Renters in Glendale deal with the same 67% difference compared to the income needed to become homeowners, although they would be about $111,452 away from the amount needed to comfortably cover the mortgage on a starter home.

Similarly, in seven other tier-2 markets — all in the Los Angeles metro area — renters were more than $100,00 short. In Garden Grove, Pasadena, Huntington Beach, Torrance, Irvine, Costa Mesa, and Fremont, the minimum yearly income necessary to land an entry-level home ranged from $161,400 to more than $223,500 when, in fact, renter household median income here was between $57,682 and $121,000.

But it’s not just California. Should they want to transition to homeownership, renters across non-core cities are held in place by significant income gaps — sometimes more than double the income they actually make. Such was the case in Yonkers, NY, and Paterson, NJ. Renters in both these satellite cities within the New York-Newark-Jersey City metro lacked 57%-58% of the amount needed to comfortably cover a monthly mortgage on an entry-level home.

Homeownership Within Renters’ Grasp in 15 Non-Core Cities: All It Takes Is a Few Months’ Worth of Income Extra
Would-be buyers in Independence, MO, & Broken Arrow, OK, are just 2% & 5% short of the amount they would need to afford a starter home

In an ideal housing market, the monthly mortgage, insurance, and property tax payments should not exceed 30% of one’s gross monthly income. But, the market has long been far from ideal for first-time buyers.

While some secondary markets require incomes that are more than double the amount of the average renter household in order to get a foot on the property ladder, others allow for a less straining financial effort. More precisely, would-be buyers in 15 non-core cities lacked 2% to 23% of the income they would need to make their homeownership dream come true (the equivalent of a few more months’ on top of what they already earn).

Such quasi-affordable pockets included Independence, MO, and Broken Arrow, OK. Here, the differences between renter income and the necessary income for a starter home were 2% and 5%, respectively, and could be covered with less than one month’s extra income.

Interestingly, the median renter household income in Independence — a secondary city within the Kansas City metro — was one of the lowest at just over $38,100. The good news is that median starter home prices here were the cheapest among the 100 cities analyzed (nearly $137,500), which goes hand in hand with the only monthly payment amount below $1,000 on the list.

Meanwhile, in six other non-core cities, the gap in earnings could be bridged with an additional 1-2 months’ worth of income. Currently, the average renter in Aurora, IL; Spring Valley, NV; League City, TX; Pasadena, TX; Coral Springs, FL; and Joliet, IL earns 9% to 14% less than what they would need to buy a median starter home. For example, the average renter in Joliet makes $40,761 but would need to make close to $47,350 to cover the monthly mortgage, taxes, and insurance for an entry-level home.

Regardless of what a starter home means nowadays, the fact remains that the once-ubiquitous entry-level home is now almost extinct — just like the dream of comfortably owning one. And, as secondary markets try on the pricey shoes of the primary ones, there’s no telling where the domino effect will eventually halt and when the demise of the starter home concept will be complete.

View the complete data set and methodology by visiting the original article here

Banner Image: Small starter home. Image Credit - Zac Gudakov


Andra Hopulele

With a passion for all things real estate and home design, Andra covers the impact of housing issues on our everyday lives. She writes about the financial implications of the new generations entering the housing market and about the challenges of homeownership. Andra can be reached at [email protected]

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