Aspiring homeowners face a challenging market, with starter homes now out of reach for almost two-thirds of non-homeowners nationwide, according to a recent LendingTree analysis. However, a select few states, primarily in the Sunbelt, continue to offer a more attainable entry point into homeownership.
Mississippi, Arkansas, Alabama, and West Virginia have been identified as the four most affordable states for starter homes. In Mississippi, the top-ranked state, 61.8 percent of non-homeowners can afford an entry-level property, where the average starter home costs approximately $85,000. West Virginia follows with 58 percent affordability and an average starter home price of around $90,000. Arkansas offers 54.3 percent affordability, and Alabama, at 54.1 percent, also remains a viable option for first-time buyers.
These figures contrast sharply with the national trend, where the typical non-homeowner household earns $7,099 less annually than the income required to comfortably purchase the average starter home, which costs about $200,000 nationwide. This affordability gap has widened as home prices have surged significantly faster than wages in recent years.
"The affordability crisis is preventing many Americans from building wealth through homeownership," said Matt Schulz, LendingTree's chief consumer finance analyst. "Homeownership can be a powerful wealth-building tool and a real stabilizing force for families. However, the numbers involved are so daunting that many people don't see a realistic way to get into the market."
The analysis highlights a stark divide between the more affordable housing markets in the South and the expensive coastal states. Rhode Island ranks as the least affordable state, with only 16.5 percent of non-homeowners able to afford a starter home, which averages around $350,000 there. Jon Perroni, who grew up in Rhode Island, noted that he has seen prices climb throughout his twenties and that salaries in the state tend to lag behind those in other areas.
California also faces significant affordability challenges. The average starter home in the state costs approximately $482,000, nearly $300,000 above the national average. Typical non-homeowner households in California earn $67,776 less than what is needed to afford a starter home, with only about one in five non-homeowners realistically able to purchase one.
Nationally, starter home prices have increased by nearly 35 percent since 2019, with smaller homes having seen even steeper increases. The supply of homes priced below $300,000 has also decreased considerably, falling from 62 percent of all home sales in 2019 to just 39 percent today. Properties priced under $200,000 now represent only 21 percent of sales, down from 40 percent.
Millennials remain the generation most likely to afford a starter home, with 45.2 percent able to purchase one, compared to 40.7 percent of Generation X, 37.3 percent of Generation Z, and 24.3 percent of baby boomers. For many, however, the location of a home is becoming as crucial as their income when determining affordability.