Starter homes are simply unaffordable.
Treasury Secretary Janet “Too Low For Too Long” Yellen, and former Federal Reserve Chair, is partly responsible for a phenomenon plaguing America: the death of starter homes.
As Mish has discussed, with main markets no longer an option for first-time buyers, Point2 looked at the country’s 100 largest secondary cities for the median price of a starter home and renter households’ median income. Defined as large non-core cities within a metro, these cities used to be fruitful house-hunting grounds for first-time buyers exploring less-expensive options away from main cities. But as it turns out, unaffordability can put a dent in homeownership plans regardless of city type or size.
- In 41 of the 100 largest secondary cities in the U.S., renters earn half or less than half of the income they would need to buy a median-priced starter home.
- There are no non-core cities in which renters could comfortably make a move toward homeownership: In 10 cities, the necessary income is about triple what they earn.
- Would-be buyers in Burbank and Glendale, CA have it worst: They lack 67% of the income they would need in order to make the move from renter to homeowner.
- Renters in 9 California cities would need to earn about $100,000 more in order to afford a starter home. Based on the latest renter income figures, starter home prices, and mortgage rates, non-core cities in the LA and San Diego metros are the toughest for first-time homebuyers.
- In 15 of the 100 largest secondary cities, renters would need less than 4 months’ worth of extra income to afford the transition to owning a starter home.
- Homeownership is within reach in Independence, MO, and Broken Arrow, OK. Those who dream of owning here would need less than one month’s worth of extra income to afford a starter home.
California Tops the List of Worst Places to Look
California has the dubious distinction of having the top least affordable starter home cities.
A starter home, according to the Census Department is priced in the bottom third of homes in the area.
Pomona, CA, is in fourteenth place. The average renter in Pomona makes $49,000 a year and needs to get to $121,000 a year. That’s nearly 2.5 times current salary.
In Burbank, CA, the average renter makes $63,000 year an needs to get to $193,000. That’s over 3 times current salary.
Within Grasp
In no market can the average renter make the plunge.
But in Independence, Missouri, or Broken Arrow, Oklahoma, the average renter is respectively just 2% and 5% short of the amount needed for a starter home
Not Shocking
None of this is shocking. It matches one one should expect looking at Case-Shiller home prices and mortgage rates.
The Fed wanted to produce inflation and it did. But for years the Fed did not even see the inflation because the manifestation of inflation was in asset prices, not the price of consumer goods.
Case-Shiller Top City Home Prices Decline From Year Ago for the First Time Since May 2012
Housing starts, like mortgage purchase demand, remains depressed compared to the housing bubble of the 2000s.
Now, will The anticipated Fed pause in rate hiking help? Not likely. The Fed still has over $8 trillion in monetary stimulus chasing assets. Too much Stimulypto.
Janet “Bubbles” Yellen probaby listened to too much Don Ho.
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