Lower mortgage rates have made cheaper starter homes more available, a trend further fueled by recent increases in household incomes.
According to real estate firm Redfin, homebuyers now need to earn $77,000 to buy a home at or below the 35th percentile for home prices, a 0.4% decrease in the required income level from last year. It will be.
“This is the first annual decline since 2020 due to lower mortgage rates,” the company said in a release Monday.
Mortgage rates have generally declined since October of last year, with the standard 30-year fixed-rate mortgage falling from 7.8% to 6.08% during this period, although there has been considerable variation.
Interest rates on 15-year mortgages fell from about 7% to 5.15% over the same period.
Mortgage rates move roughly in line with the yield on 10-year government bonds, but are supported by interbank lending rates. The interest rate remained elevated at 5.33% over the past year, but was recently lowered by the Fed to 4.83%.
Redfin economist Elijah de la Campa noted that even though the affordability of cheaper homes has increased, the quality of these homes has declined over time.
“Starter House is not what it used to be,” he said in a statement. “Ten years ago, a turnkey four-bedroom house in a nice neighborhood was considered a starter home, but now first-time homebuyers can only buy a small fixer-upper condo. The American dream is changing. For many, it's no longer about the house or the white picket fence.”
In 2023, median U.S. household income jumped to $80,610, a 4% increase from 2022 and the first increase since 2019.
Housing inflation tends to track headline inflation, so housing prices remain relatively high relative to overall prices. In the August consumer price index, the seasonally adjusted overall inflation rate fell to an annualized rate of 2.6%, but the owner-equivalent rent component included in the index rose only at an annualized rate of 5.4%.
Owner rent inflation rose from 5.3% to 5.4% in August, the first increase since April last year.
