America’s housing market has hit a crisis point, leaving millions of potential homebuyers on the outside looking in. A new report from Redfin lays out the troubling reality for many Americans: the average household simply cannot afford a starter home. With wages lagging far behind home prices and mortgage rates at crushing levels, the American dream of homeownership is slipping away for too many.
The numbers paint a stark picture. According to Redfin’s latest analysis, an American household now needs to earn nearly $80,000 annually to afford a basic starter home. That’s a full $20,000 more than the typical household income in the U.S., which hovers around $59,436, as reported by the Bureau of Labor Statistics (BLS). For the average American worker bringing in about $1,143 a week, owning a home is becoming an unattainable goal.
In July, the average monthly payment for a starter home reached nearly $2,000—$1,981 to be exact—a 4.4% increase from just a year prior. To comfortably manage such payments, buyers need to be earning at least $79,252 annually, according to Redfin’s findings. But with the typical household falling significantly short of that figure, millions of families are effectively priced out of the housing market.
“Rising mortgage rates and surging home prices are squeezing people out,” said a Redfin analyst. What’s worse, this financial pressure is nearing an all-time high, approaching the peak levels we saw in October last year. The result is a growing gap between home prices and American wages, with little relief in sight.
The pandemic exacerbated this crisis, driving up housing prices to unsustainable levels. Before COVID-19, buying a home was much more affordable, allowing middle-income families to buy their first homes with relative ease. But since then, home prices have soared, leaving many middle-income earners desperately chasing starter homes, which have now become the go-to option. This has effectively pushed lower-income families completely out of the market.
Redfin’s report revealed that in more than half of the country’s major cities, local median incomes aren’t even enough to qualify for a starter home. California, as expected, leads the nation in this affordability crisis, with cities like Anaheim and Los Angeles posting shocking numbers.
In Anaheim, a household needs to earn a staggering $251,302 annually to buy a basic starter home. That’s more than double the local median income of $122,192. Similarly, in Los Angeles, where the median income is $93,197, homebuyers would need to bring in $184,477 annually to afford a starter home. The math simply doesn’t add up for most families in these cities.
This widening affordability gap has led to fierce competition in more affordable markets across the country. Even in cities like Milwaukee, where prices are lower, the demand for starter homes is driving bidding wars. Ben Ambroch, a Redfin agent in Milwaukee, described the situation as “a battle.” Homes in the $150,000 to $350,000 range, once easily attainable for first-time buyers, are now receiving multiple offers, sometimes driving prices even higher.
“We listed a home for $210,000, and it got multiple bids,” said Ambroch. “One buyer even offered to buy the seller pizza every Friday until the deal closed. It didn’t work, but that’s the kind of competition we’re seeing right now.”
Despite these dire circumstances, there are small signs of hope. The number of starter homes on the market grew by nearly 20% in July compared to last year, which could offer a glimmer of relief for frustrated buyers. And while mortgage rates remain high, they are slowly coming down. According to Freddie Mac, the average weekly mortgage rate stood at 6.35% as of August 29, down from a staggering 7.18% the previous year.
Additionally, while home prices continue to rise, the rate of increase is slowing. Redfin noted that the 4.4% growth in starter home prices this year is among the smallest increases since 2021. Compare that to the 14% jump in home prices last year, and it’s clear that while the market is still climbing, the ascent is becoming more gradual.
But for many, these signs of hope are simply too little, too late. Until wages catch up with housing prices, millions of Americans will remain stuck on the sidelines, watching as the American dream slips further out of reach. As mortgage rates and home prices continue to rise, it’s time for policymakers to take serious action to address this growing crisis—before it’s too late.
