First-Time Home Buyer Affordability Report – Q1 2024

At a time of year when home prices are generally at their lowest, the long-term financial goal of homeownership likely stayed out of reach for many would-be first-time buyers in the first quarter.

The past several years have seen dramatic home price growth paired with — and largely due to — a low supply of homes for sale. These conditions, along with high mortgage rates, sustained an unwelcoming market for would-be buyers at the beginning of 2024. And among those buyers, first-timers likely felt it the most.

People purchasing a home for the first time generally have lower down payments than repeat buyers, who may have equity in an existing home working in their favor. First-timers may also have lower incomes and less robust credit history, which can work against them in qualifying for the lowest available rates.

When homes become less affordable across the nation — whether through higher prices, higher interest rates or both — it’s often first-timers who are most affected. Indeed, first-time buyers made up just 26% of all home buyers in 2023, according to the National Association of Realtors. This is a decrease from 34% the year before and the lowest on record.

In the first quarter, prices didn’t rise, but they also didn’t come down. Inventory remained low and mortgage rates high. These continued conditions meant little relief in a tight housing market.

Affordability challenges in the cheapest homebuying season

Generally, the first quarter of the year sees the lowest home prices. Demand is low — fewer people buy during the coldest months. In 2024, while prices didn’t grow in the first quarter, home prices across the country remained very high for potential first-time buyers.

Homes were listed at prices five times the potential first-time buyer income in the first quarter, on average. Looking at homes priced around three times your annual income is an old rule of thumb used to help people gauge affordability. Under this guidance, some metros remained easier targets than others for first-timers.

Among the more affordable areas in the first quarter were Pittsburgh, where homes were listed at 2.8 times potential first-time buyer income, Detroit (2.9), Cleveland (3.0), Buffalo (3.2) and Baltimore (3.4). At the other end of the spectrum was Los Angeles, where homes were listed at 12 times first-time buyer income, San Diego (9.3), San Jose (7.7), New York City (7.1) and Boston and Miami, both 7.0.

Though prices were relatively unchanged from the last quarter of 2023, across the nation, they fell very slightly when compared to the first quarter of last year. In two metro areas, Miami and Oklahoma City, prices fell 10% year over year, after accounting for inflation. By contrast, they rose double digits in Richmond (11%), Pittsburgh (11%) and Los Angeles (13%).

First-time buyer tip: Home prices are largely driven by inventory. The number of homes available for sale is paltry, though it rose 15% from the first quarter of last year. If you’re shopping for your first home, keep in mind that buying in this market may mean making sacrifices beyond a high sticker price — you may not find a home that hits all (or even most) of the items on your wish list. Go into the shopping experience knowing what you’re willing to compromise on and where you draw your line to help ensure you don’t end up closing on a pricey home you’re not entirely happy about.

Mortgage rates continue to play an outsized role

Rates on 30-year fixed mortgages have risen from below 3% in 2020 and 2021 to around 7%, on average. In the first quarter of the year, there was brief and subtle respite as rates fell from over 7% to just below. But even this rate is more than twice what people faced when they purchased during the pandemic.

These higher rates play a significant role in affordability, particularly for first-time buyers or those with less room in their budgets. The change in rates from 2020 to 2024 translates to an additional $800 on the monthly payment of an average-priced home and several hundred thousand dollars in additional interest over the life of a 30-year loan.

Home buyer tip: If you’re considering waiting out the high rates, temper your expectations — rates may moderate toward the end of 2024, but they’re unlikely to go below 6%, according to the latest mortgage rate forecasts. You can use the time spent waiting for a less expensive mortgage to build a bigger down payment. Moderately lower rates and a larger down payment can make a considerable difference in the affordability of your monthly payments.

What constitutes affordability is shifting

The guideline that says an affordable home is one listed around three times your income may have originated decades ago when government officials promoting affordable housing and lenders used that ratio. But getting a rough idea of affordability by looking at homes listed at three times your income is most useful when homes are actually priced in that range. In other words, as home prices rise considerably and incomes don’t, such guidance makes an “affordable” home more elusive.

Looking at national averages, homes haven’t been selling for close to three times the typical income since 2011.

The three-times-income guidance isn’t meant to be the final say in whether you can afford a home, but rather a starting point. Affordability measures that account for expenses such as taxes and mortgage rates are a more precise gauge.

First-time home buyer tip: There’s no harm in estimating affordability when you’re looking at listings on your phone with a simple income-to-price ratio. Even if homes are priced four or five times your income where you’re looking, it starts to give you some sense of how far of a stretch the purchase might be. Be aware that much more goes into home buying and homeownership costs. A home affordability calculator can help you plan for the details, including your other debt obligations, down payment amount, mortgage insurance, interest rates and homeowners insurance.