High home prices, rising interest rates, and elevated inflation have made first-time homebuying increasingly unaffordable. According to Redfin, first-time buyers must earn roughly $64,500 a year to afford a starter home, a figure 13% higher than a year ago. Not only are entry-level homes more expensive, but they’re also becoming harder to find.
Younger generations looking for starter homes are competing with older buyers downsizing to age in place, and that increased competition is forcing first-timers to dish out more money for available homes. The typical starter home sold for a record high $243,000 in June, up more than 45% from pre-pandemic levels, Insider reports.
"Buyers searching for starter homes in today's market are on a wild goose chase because in many parts of the country, there's no such thing as a starter home anymore," Redfin senior economist Sheharyar Bokhari said in a blog post.
"The most affordable homes for sale are no longer affordable to people with lower budgets due to the combination of rising prices and rising rates. That's locking many Americans out of the housing market altogether, preventing them from building equity and ultimately building lasting wealth," she added.
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