How Affordable Are Homes for First-Time Buyers?

If rising prices, historically low inventory, an entire pandemic, and record unemployment did not keep first-time buyers away, will anything? Probably not. NerdWallet reports that 35% of existing home sales in the month of June were from first-time buyers. But homes are not affordable for many, and homes in the largest metro areas became less affordable for first-time buyers in the second quarter. NerdWallet was able to analyze home affordability for first-time buyers by analyzing median income for the 25 to 44 age range compared to listing prices, which gives them an affordability ratio. See the least and most affordable cities by reading more.

In this quarterly report, we analyze median incomes in the first-time home buyer age range (25-44) compared with listing prices among the 50 most populous metro areas to come up with an affordability ratio. Budgeting for a home that costs roughly three times your annual income (an affordability ratio of 3.0) has been a rule of thumb for years, but first-time buyers often have to stretch beyond this to account for higher prices in metro areas and their lower incomes compared with repeat buyers. By weighing the affordability ratio versus home availability in the largest metro areas, we can get an idea of the conditions first-time buyers are facing when they set out to become homeowners.

By looking at both quarter-over-quarter and year-over-year changes, we can get a better picture of the effects of the COVID-19 economy on this year’s homebuying market. The former can provide insight into chronological market responses to the pandemic — our first-quarter affordability report captured data only through March, just the beginning of 2020’s atypical spring season. The latter can show how this year’s second quarter contrasts with similar periods in relatively normal times.

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