According to a recent report from Realtor.com, the number of first-time home buyers dropped to 24% last year, the lowest figure on record. Elevated housing prices and high mortgage rates have made it difficult for first-timers to enter the real estate market.
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However, in positive news, the report also listed the most affordable housing markets for first-time buyers. There are markets where you can still purchase a home as a first-timer with a modest salary. If you’re willing to move to one of these affordable markets, you could get in for just under $50,000.
The markets are ranked based on several factors, including the local economy, housing market affordability, growth potential and access to amenities. Here’s a look at these markets and the salary you’ll need to reasonably afford a home there.
Realtor.com reported that the median listing price for homes across America was at $416,800 as of November 2024. Fortunately, half of the markets in the report have a median listing price below $200,000 and are considered affordable based on median household incomes compared to median listing prices.
Here’s the methodology for determining affordability and the costs in the report:
The mortgage payments are listed before taxes and insurance, since this varies by location.
The assumed down payment is 10%, with a 6.69% mortgage rate.
“Affordable” housing is defined as costing 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’s crucial to understand what that means.
The price-to-income ratio is how much you would have to spend on purchasing a home compared to your annual household salary. This is a common measure of housing affordability, even though real estate prices have skyrocketed in recent years. Traditionally, the generally accepted rule is that you should aim for a 2.6 price-to-income ratio when house hunting.
The harsh reality is that this is rare these days with elevated housing costs, with 2024 research from Construction Coverage revealing that the rate was at 4.7 nationally.
For example, Rochester has a price-to-income ratio of 2.5 and a median listing price of $129,000, which means that first-time buyers in the market had an annual household income of $51,960.
The study noted that the monthly mortgage payment in Rochester is $650, not including taxes and insurance. This means that someone with an annual income of $51,960 is bringing in $4,330 monthly, so spending $650 on their mortgage means that about 15% of their monthly household income goes towards housing. The 15% figure labels this property as affordable, since it falls under the recommended 30% rule.
Here are the top ten markets for first-time buyers, and the annual salary you’d need to afford a home there, using the 2.6 price-to-income ratio.
Median listing price: $140,000
Annual salary needed to afford a home: $53,846
Median home price: $129,900
Annual salary needed to afford a home: $49,615
Median home price: $236,950
Annual salary needed to afford a home: $91,135
Median home price: $154,850
Annual salary needed to afford a home: $59,558
Median home price: $229,400
Annual salary needed to afford a home: $88,231
Median home price: $135,000
Annual salary needed to afford a home: $51,923
Median home price: $160,000
Annual salary needed to afford a home: $61,538
Median home price: $210,000
Annual salary needed to afford a home: $80,769
Median home price: $229,900
Annual salary needed to afford a home: $88,423
Median home price: $222,000
Annual salary needed to afford a home: $85,385
If you’re uncertain about what you can afford, here are a few things to consider before buying your first place.
“The guideline suggests traditionally limiting housing expenses to 30% of one’s gross income; in less standard cases, that number becomes more dynamic and depends on local markets, additional expenses — property taxes, HOA fees, etc. — and the buyer’s broader plan for their money,” said Elliott Caldwell, an entrepreneur and co-founder of many companies involved in estate, vacation rentals and construction.
The 30% rule can be challenging to follow in many markets. The affordable housing markets listed by Realtor.com all had housing expenses under 30% of average monthly income. However, many of the homes didn’t fit into the 2.6 rule for the price-to-income ratio.
While the research from Realtor.com focused on the price-to-income ratios and salaries, there are other rules to consider for housing affordability.
Your down payment plays a pivotal role in monthly payments. If you have a significant down payment combined with an excellent credit score, you can reduce your monthly payments, bringing your costs below 30% of your income.
Mortgage rates vary based on your personal situation. The mortgage rate that your lender offers you will be based on multiple factors, like your job stability and savings.
“It’s a good idea to get pre-qualified before you dive into house hunting,” said Elizabeth Alligood, a certified real estate expert and founder of Elizabeth Alligood & Associates. “Think of it like window shopping: You might find a home you absolutely love, thinking it’s out of your budget — when in reality, it might be within reach… or vice versa.”
If you’re unsure which housing affordability standard to follow, you may want to speak with a professional lender to gather insights into your unique financial situation. You can’t ignore the role of your savings and overall financial picture when it comes to being able to afford a significant financial commitment like purchasing a home.
Alligood added, “Understanding what you qualify for and what your monthly payment will help you make adjustments and find a home that suits your budget and lifestyle.”
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This article originally appeared on GOBankingRates.com: Here’s the Salary You’ll Need To Afford a House in the Top 10 Markets for First-Time Buyers
Alisha Hunter is a news writer for Credence Advisors-News. She's been writing for over a decade, and she has taught herself all the skills she needs to be successful in this role.
Alisha has written about everything from technology to fashion; she's even written an advice column for brides-to-be!
Alisha loves reading books and watching movies - she's currently working on a book club with her friends where they read one book each month together!
