According to a new report from Realtor.com, the number of first-time home buyers fell to 24% last year, the lowest number on record. Rising housing prices and high mortgage rates make it difficult for beginners to enter the real estate market.
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But, in the positive news, the report also lists the most affordable housing market for first-time home buyers. In some markets, you can still buy a home with a modest salary as the number one. If you are willing to move to one of these affordable markets, you can enter for less than $50,000.
The market is ranked based on several factors, including the local economy, housing market affordability, growth potential and amenities. Here are these markets and the salary you need to reasonably afford the home.
Realtor.com reported that the median price of homes across the United States was $416,800 as of November 2024. Fortunately, half of the markets in this report have a median listing price of less than $200,000 and based on median household income, it is considered affordable compared to the median.
Here is a way to determine affordability and reporting costs:
Mortgage payments are listed before taxes and insurance, as this will vary by location.
The assumed down payment is 10% and the mortgage rate is 6.69%.
“Affordable” housing is defined as less than 30% of the buyer’s monthly salary.
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Since the report focuses on markets with a lower price-to-income ratio, it is crucial to understand what this means.
How much do you have to spend on buying a home compared to your annual family salary. Even though real estate prices have been a common measure of housing affordability in recent years. Traditionally, the generally accepted rule is that when hunting a house, you should earn a price ratio of 2.6.
The bad reality is that housing costs are rising today, which is rare, with 2024 construction coverage studies showing a national speed of 4.7.
For example, Rochester has a price-to-income ratio of 2.5 and an intermediate listing price of $129,000, meaning first-time buyers in the market earn $51,960 annually.
Research points out that Rochester’s monthly mortgage payments are $650, excluding taxes and insurance. This means that people with an annual income of $51,960 earn $4,330 a month, so the mortgage is spending $650, meaning that about 15% of their monthly household income goes to housing. The 15% figure marks the property as affordable as it falls under the recommended 30% rule.
Here are the top ten markets for first-time home buyers, using a price-to-income ratio of 2.6, where you need to afford the annual salary of your home.
Intermediate listing price: $140,000
The annual salary of the house is required: $53,846
Intermediate room price: $129,900
The annual salary of the house is required: $49,615
Intermediate room price: $236,950
The annual salary of the house is required: $91,135
Intermediate room price: $154,850
The annual salary of the house is required: $59,558
Intermediate room price: $229,400
The annual salary of the house is required: $88,231
Intermediate room price: $135,000
The annual salary of the house is required: $51,923
Intermediate room price: $160,000
The annual salary of the house is required: $61,538
Intermediate room price: $210,000
The annual salary of the house is required: $80,769
Intermediate room price: $229,900
The annual salary of the house is required: $88,423
Intermediate room price: $222,000
The annual salary of the house is required: $85,385
If you are not sure what you can afford, there are a few things to consider before buying first place.
“The guideline shows that housing costs are traditionally limited to 30% of a person’s total income; in less standard cases, this number becomes more active, depending on the local market, additional expenses – property taxes, HOA fees, etc. – and the wider plan that buyers offer for their money.
The 30% rule can be challenging in many markets. Realtor.com lists housing costs in affordable housing markets that are below 30% of the average monthly income. However, the price ratio of many homes does not fit the 2.6 rule.
While Realtor.com’s research focuses on price-to-income ratios and salary, there are other rules that need to consider housing affordability.
Your down payment plays a key role in monthly payments. If you have a large down payment and a great credit score, you can reduce monthly payments, leaving your costs below 30% of your income.
Mortgage rates vary according to your personal circumstances. The mortgage rate provided by your lender will be based on a number of factors such as stability in your job and savings.
“Before you dive into the hunt, it’s better to qualify first,” said Elizabeth Alligood, a certified real estate expert and founder of Elizabeth Alligood & Associates. “Imagine window shopping: You might find a house you absolutely love and think it’s over budget—in fact, it might touch…and vice versa.”
If you are unsure which housing affordability standard to follow, you may need to talk to a professional lender to understand your unique financial situation. When it comes to major financial commitments like buying a home, you can’t ignore the role of savings and overall financial situation.
“Understanding your eligibility and your monthly payments will help you make adjustments and find a home that suits your budget and lifestyle,” Alligood added.
More information from Gobankingrates
This article originally appeared on gobankingrates.com: This is the salary of first-time buyers
