Starter Homes Out of Reach for Most Buyers

Buying a starter home has become increasingly difficult for most aspiring homeowners, with only 37.6% of renters nationally able to afford one, according to a new report from LendingTree. The study analyzed the average starter home cost in every state against the average non-homeowner salary, finding that in nearly every state, home prices far outpaced median salaries. A starter home is defined as a smaller, affordable property, typically 1,500 square feet or less.

In 2019, the median listing price for a two-bedroom home was approximately $220,000, requiring a household income of about $49,000 to afford. By 2022, this median price had risen by 48% to $325,000. Nationally, the average price for starter homes is $200,000, but the median non-homeowner household earns $62,099 annually, which is $7,099 less than the $62,099 income needed to afford a home at that price point.

Southern states, including Mississippi, West Virginia, Arkansas, and Alabama, offer the best opportunities for renters to transition to homeownership. However, states like Rhode Island present the most significant affordability challenges. In Rhode Island, the median starter home cost is $350,000, requiring an annual income of around $107,000 for non-homeowners, who earn a median of $51,000. This creates a 110% affordability gap in the state. California, Hawaii, Colorado, and Massachusetts also have median starter home prices exceeding $400,000.