It’s becoming more and more difficult for aspiring homeowners to break free from renting, but there are still a few states where buying a starter home isn’t out of reach, a new report from LendingTree has found.
A handful of Southern states offer the best opportunity for renters to make the leap to homeownership, including Mississippi, West Virginia, Arkansas, and Alabama, the study found.
A starter home is defined as being a smaller, affordable home—usually around 1,500 square feet or less. In recent years, it’s become increasingly difficult to find starter homes, and prices have risen sharply.
In 2019, the median listing price for a two-bedroom home was around $220,000—which would have required a household income of roughly $49,000 to afford. By 2022, the median listing price for the same property was $325,000, a 48% increase in price.
For its starter home affordability report, LendingTree analyzed the average starter home cost in every state and ran it against the average nonhomeowner salary. In nearly every state, the median cost of homes far outpaced the median salary of a nonhomeowner.
Nationally, just 37.6% of renters can afford a starter home, with the average price for starter homes sitting at $200,000.
The median nonhomeowner household earns $7,099 less than the $62,099 annual income needed to afford a home at that price, the study found.
Rhode Island has most significant starter home affordability gap, according to the report. The median cost of a starter home in the state is $350,000.
That’s affordable, compared to the state’s overall median home price of $575,000. But when you compare it against the median income of nonhomeowners in the state, which is $51,000, it’s still very much out of reach.
To afford a home at that price, you’d need to make around $107,000 a year, which means there’s a 110% affordability gap in the state.
California, Hawaii, Colorado, and Massachusetts all have median starter home prices of $400,000 and above, and affordability gaps of more than 80%.
So where is the dream of a starter home still alive? The report found that the South dominates when it comes to the starter home market.
Mississippi leads the nation, with 62% of renters in the Magnolia State earning enough to afford the median starter home there, the study found.
Matt Schulz, LendingTree chief consumer finance analyst and the author of “Ask Questions, Save Money, Make More: How to Take Control of Your Financial Life,” says there are often ways to make homeownership a reality. But “it may take planning, sacrifice, and a clear-eyed look at what you’re willing to do to make your dream come true.”
Would-be homeowners hoping for the best mortgage rates should focus on the following:
Above all, says Schulz, prospective homeowners need to be honest about how much house they can afford.
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Percentage of nonhomeowners able to afford a starter home: 61.8%Starter home value: $85,000Starter home price-to-income ratio: 2.19Income needed: $29,523Median nonhomeowner income: $38,800
Percentage of nonhomeowners able to afford a starter home: 58.0%Starter home value: $90,000Starter home price-to-income ratio: 2.57Income needed: $29,114Median nonhomeowner income: $35,000
Percentage of nonhomeowners able to afford a starter home: 54.1%Starter home value: $120,000Starter home price-to-income ratio: 2.82Income needed: $39,239Median nonhomeowner income: $42,500
Percentage of nonhomeowners able to afford a starter home: 54.3%Starter home value: $110,000Starter home price-to-income ratio: 2.75Income needed: $37,862Median nonhomeowner income: $40,000
Percentage of nonhomeowners able to afford a starter home: 52.7%Starter home value: $150,000Starter home price-to-income ratio: 2.95Income needed: $48,785Median nonhomeowner income: $50,800
Percentage of nonhomeowners able to afford a starter home: 52.3%Starter home value: $125,000Starter home price-to-income ratio: 2.55Income needed: $45,793Median nonhomeowner income: $49,000
Percentage of nonhomeowners able to afford a starter home: 50.7%Starter home value: $125,000Starter home price-to-income ratio: 2.89Income needed: $42,280Median nonhomeowner income: $43,300
Percentage of nonhomeowners able to afford a starter home: 49.9%Starter home value: $120,000Starter home price-to-income ratio: 2.69Income needed: $44,969Median nonhomeowner income: $44,600
Percentage of nonhomeowners able to afford a starter home: 48.9%Starter home value: $124,000Starter home price-to-income ratio: 3.26Income needed: $39,114Median nonhomeowner income: $38,000
Percentage of nonhomeowners able to afford a starter home: 47.7%Starter home value: $200,000Starter home price-to-income ratio: 3.33Income needed: $63,386Median nonhomeowner income: $60,000
