U.S. cities where starter homes are affordable

With homeownership costs doubling since last year, the starter market has become unaffordable for most buyers in all but four major US 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 considered the first home a family can buy, so they tend to be smaller and cheaper than other homes for sale. But due to the costs of home ownership, starter housing is becoming “a myth,” according to Point2.

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

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

1.Detroit

median annual income: $25,004

Income needed to pay for an initial home: $19,103

Median Initial Home Price: $48,129

2. Tulsa, Okla.

median annual income: $35,039

Income needed to pay for an initial home: $29,521

Median Initial Home Price: $95,481

3. Memphis, Tennessee

4. Oklahoma City

median annual income: $37,211

Income needed to pay for an initial home: $37,071

Median Initial Home Price: $126,442

Why have initial housing costs increased?

In addition to a chronic housing shortage that predates the Covid-19 pandemic, supply constraints and rising building material costs have contributed to rising home prices, says Lawrence Yun, chief economist at the National Association of Real Estate Agents.

And with home prices rising nearly 30%, “we know for a fact that people’s incomes haven’t increased by 30%,” he says.

The market is likely to remain grim, at least until mortgage rates decline and housing supply catches up with demand, Yun says. Unfortunately for prospective home buyers, home construction has slowed recently due to economic uncertainty.

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“The entry-level housing market has gotten increasingly tough over the last 20 years,” says Yun. This has created a “social divide” between owners and non-owners, who “just feel like they can’t catch up.”

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