Starter homes more affordable, but rising rates give pause

Starter homes in June are now 1.5% more affordable than they were a year ago based on the borrower's income, continuing a trend that began last November, Redfin said. But rising mortgage rates have narrowed the gap.

By comparison, in January, the income needed to afford one of these homes was 5.3% lower than for the same month in 2025.

But since the end of February, when the 30-year fixed was under 6% for a single week, rates have mostly been on the rise, according to the Freddie Mac Primary Mortgage Market Survey. As of July 30, the rate was at a 51-week high, at 6.66%.

Nationwide, in June, an American would need income of $70,693 to be able to afford the typical starter home. For the same month in 2025, it was $71,766.

Helping affordability is household income that has been growing at the same time the amount of money these buyers would need to make has been on the decline.

In June, median household income was $87,599, compared with $84,297 in 2025.

This means the spread between the two increased to almost $17,000 from $12,500 over the time period.

How Redfin defines affordability

Affordability is reached when a buyer needs to spend no more than 30% of their income on a monthly mortgage housing payment, according to Redfin, which is now owned by Rocket Cos.

But besides rising mortgage rates, prices for starter properties also have been trending higher to near record highs. Plus, even though these are labeled as starter homes, Redfin is finding competition for potential first-time owners with move-up buyers, who come to the table with equity left over from the home they sold.

"Affordability has improved modestly for entry-level buyers, but starter homes come with tradeoffs, and finding the right one is a challenge," said Yingqi Xu, a senior economist at Redfin, in a press release.

Buyers are likely to find a lot of properties in the starter-home category needing some updating and many are already stretching their budgets and can't take on a rehab project. In 242 cities, starter home prices are over $1 million, a recent Zillow report said.

"Move-in ready starter homes attract strong demand, while fixer-uppers aren't quite as desirable because the buyers who are typically in the market for an inexpensive home don't have much financial cushion for renovations," Xu said.

In 22 of the 46 most populous metro areas (four areas did not have sufficient data), every starter home listed for sale was affordable to a median-earning household.

Finding an affordable starter home in several California markets was difficult, though. In Los Angeles and San Diego, no listing met the affordability standard. In San Francisco, it was 0.4%; Anaheim, 2.6%; and San Jose, 7.4%.

In Austin, Texas, one of the markets where all starter listings were considered affordable, the income required to purchase a unit decreased by 6.1%.

The second largest decline was in Oakland, California, where 6% less money than last year was needed in order to afford a starter home. Nearly 27% of starter home listings were affordable for a median income earning household.

But a starter home buyer in Detroit must now earn 8.3% more than a year ago. The metro with the second largest gain was Cleveland, at 6.1% higher, followed by Nassau County, New York, at 3.7% over a year ago.

But Detroit and Cleveland both remain very affordable for starter home buyers. Detroit's estimated median income was $65,687, while a buyer needed to earn $30,511 to buy a home. In Cleveland, these amounts were $78,519 and $43,336 respectively.

The latest to offer a 1% down program

Some lenders are attempting to help potential homebuyers by offering programs requiring extremely low down payments.

The latest is Lower. The new offering, called One by Lower, requires the customer to come up with 1%, with an additional 2% towards the down payment coming from a lender grant.

Eligible borrowers can receive up to $45,000 through the program, which is open to both first-time and repeat buyers.

The maximum loan amount available is $375,000, and total household income cannot exceed 80% of the area median income.

"Every day, we meet buyers who have the credit and income to afford a mortgage but can't overcome the hurdle of saving for a down payment," said Craig Montgomery, chief strategy officer and president of Lower's retail division, in a press release. "These are the first responders, teachers, mail carriers and countless others who keep our communities running."

Lower is not the first mortgage banker to roll out a 1% down program accompanied by a grant.

In 2017, Guild Mortgage introduced such an offering, underwritten to Fannie Mae HomeReady guidelines.

United Wholesale Mortgage revived its 1% down offer, which included 2% down payment assistance from the company, in June 2025. For a brief period of time, the company also had a 0% down purchase product.

In March, OriginPoint, a joint venture between Rate and Compass, updated its OneDown program, to include a $6,000 lender-paid grant or a 1% lender-paid temporary interest rate buy down in addition to the borrower's 1% contribution.