Soaring home prices mean first-time buyers need to be making 13% more money than a year ago to afford a 'starter' home

• A first-time homebuyer needs to earn 13% more money to afford a starter home, per a Redfin analysis.
• The average starter home cost $243,000 in June, sending the income needed to afford it to $64,500 per year.

First-time buyers need to be making around 13% more compared to a year ago to afford a starter home, according to a new Redfin analysis.

The average starter home cost $243,000 in June, up 2% from the average price last year and up 45% from before the pandemic. Meanwhile, the average mortgage rate was 6.7% in June, up from 5.5% a year earlier.

As a result, a first-time buyer now needs to earn around $64,500 a year to afford a starter home, up 13% from 2022, when buyers needed annual income of $57,300.

"Buyers searching for starter homes in today's market are on a wild goose chase because in many parts of the country, there's no such thing as a starter home anymore," Redfin senior economist Sheharyar Bokhari said in a statement on Friday. "The most affordable homes for sale are no longer affordable to people with lower budgets due to the combination of rising prices and rising rates."

High mortgage rates and home prices have sent the average monthly mortgage payment for a starter house to $1,610, up 13% from last year, Redfin said.

High borrowing costs have also weighed on the available housing supply, as existing homeowners are looking to keep the ultra-low rates at which they financed their house years ago.

That's led to a supply-demand imbalance that's pushed up home prices. New listings of starter homes have fallen 23% from the last year.

Experts say affordability won't improve until mortgage rates pull back more significantly, though that's unlikely to happen anytime soon. Mortgage rates are influenced by the fed funds rate, which are expected to remain elevated at least through the rest of the year.

On Wednesday, central bankers raised interest rates another 25 basis points to 5.25%-5.5%, the highest since 2001. Meanwhile, the average rate for the 30-year fixed mortgage inched higher to 6.81% the last week, according to Freddie Mac.