There Are Now Only Four U.S. Cities Where the Average American Can Afford a Starter Home

With homeownership costs doubling since last year, the market for starter homes has become unaffordable for most buyers in all but four major U.S. cities, according to a recent study published by real estate site Point2.

Those cities are:

• Detroit
• Tulsa, Oklahoma
• Memphis, Tennessee
• Oklahoma City

Starter homes are generally thought of as the first home a family can purchase, so they tend to be smaller and cheaper than other homes listed for sale. But due to homeownership costs, the starter home is becoming the “stuff of myths,” according to Point2.

For the purposes of Point2’s analysis, starter homes are those valued in the bottom third of all homes available in a given market. To measure affordability, the study follows the common personal finance rule that a mortgage payment shouldn’t exceed 30% of a homeowner’s gross monthly income.

Here’s a closer look at the four cities where starter homes are actually affordable for those earning the area’s median household income.

Median annual income: $25,004

Income needed to afford a starter home: $19,103

Median starter home price: $48,129

Median annual income: $35,039

Income needed to afford a starter home: $29,521

Median starter home price: $95,481

Median annual income: $30,093

Income needed to afford a starter home: $27,966

Median starter home price: $87,174

Median annual income: $37,211

Income needed to afford a starter home: $37,071

Median starter home price: $126,442

Aside from a chronic shortage of housing that predates the Covid-19 pandemic, supply constraints and growing costs for building materials have contributed to increasing home prices, says Lawrence Yun, chief economist at the National Association of Realtors.

And with home prices up by nearly 30%, “we know for sure people’s incomes have not risen by 30%,” he says. 

The market will likely remain discouraging, at least until mortgage rates drop and the supply of homes catches up with demand, says Yun. Unfortunately for potential homebuyers, home building has slowed recently due to economic uncertainty.

“The starter home market has become increasingly difficult over the past 20 years,” says Yun. This has created a “social divide” between homeowners and non-homeowners, who “simply feel like they cannot catch up.”

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