Homebuyers need to earn 87% more than in pre-COVID years to afford a starter home, Redfin says

• US income earners must make $75,849 to afford a starter home, Redfin reported.
• That's an 87% jump from the how much a buyer needed to earn pre-COVID, in 2020.

US starter homes are now roughly half as affordable as in 2020, as buyers must now earn nearly twice as much to purchase the typical first-time property, Redfin reported.

In February 2020, a starter home required that a buyer earn $40,465 annually. But four years later, that figure now stands at $75,849, and represents an 87% jump.

Higher costs and a sharp upswing in mortgage rates account for the difference, Redfin said. Whereas the median starter home price was $169,000 in 2020, it's now ballooned to $240,000.

That's while the average 30-year mortgage fixed rate jumped from 3.5% to 6.78% rate, as of February.

Such conditions aren't exclusive to the start home market, as affordability has become a key issue throughout the US housing landscape.

Higher prices are in part the result of a national supply shortage, while elevated mortgage rates have kept current homeowners from selling — which only adds to the inventory headache. According to Zillow, homebuyers need to earn 80% more than in pre-COVID years to buy into the broader housing market.

Now, the US median-income earner makes $84,072, Redfin said, marking a 5.5% wage increase from February 2023.

While that means that typical earners can still afford a starter home, income growth is slower than home appreciation. The current $75,849 starter home price is an 8.2% increase from last year.

But, relief is coming from falling mortgage rates, which have climbed down from an 8% high in October. As interest rates are likely to fall this year, mortgage rates should gradually diminish overtime, making starter homes more affordable, Redfin said.

"Affording a home remains a financial stretch, or a pipe dream, for so many households," CEO for ATTOM Rob Barber said in a separate report, speaking about the border market: "But with mortgage rates coming down and home prices growing only by modest amounts, it's gotten a bit easier for average wage earners to afford a home so far this year."