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U.S. cities where starter homes are affordable

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A recent study found that the cost of owning a home has doubled in the last year, making the market for starter homes out of reach for most buyers outside of four major U.S. cities. 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 less expensive than other homes for sale. But according to Point 2, the cost of home ownership is making the first home “something of a myth.”

In the Point2 analysis, starter homes are homes that are in the bottom third of all homes available in a particular market. To measure affordability, this study follows the common personal finance rule that mortgage payments should not exceed 30% of the homeowner’s gross monthly income.

Here, we take a closer look at four cities where starter homes are actually affordable for those earning the median household income in the area.

1. Detroit

median annual income: $25,004

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

median initial home price: $48,129

2. Tulsa, Oklahoma

median annual income: $35,039

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

median initial home price: $95,481

3. Memphis, Tennessee

median annual income: $30,093

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

median initial home price: $87,174

4. Oklahoma City

median annual income: $37,211

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

median initial home price: $126,442

Why the cost of starter homes has risen

apart from chronic housing shortage Lawrence Yuen, chief economist at the National Association of Realtors, said supply constraints and rising costs of building materials that predate the Covid-19 pandemic have contributed to rising home prices.

And with home prices up nearly 30%, “certainly people’s incomes haven’t gone up by 30%,” he says.

The market is likely to remain depressed at least until mortgage rates fall and housing supply catches up with demand, Yoon said.Unfortunately for potential homebuyers, home construction is late lately because of economic uncertainty.

“The starter home market has become more difficult over the last 20 years,” says Yun. This creates a “social divide” between homeowners and non-homeowners who just “feel unable to keep up.”

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