First-Time Home Buyer Metro Affordability Report — Q2 2023

High home prices are easier to stomach when mortgage rates are ultra-low. But in the second quarter of this year, climbing prices paired with relatively high interest rates made life even more difficult for potential first-time buyers.

In 2022, rates on 30-year mortgages climbed from just over 3% to nearly 7%, and the dramatic increase scared some potential home buyers away from the market. But this year, as buyers understand that these rates are here to stay, demand has returned. Unfortunately for first-time buyers, the rates that give them pause are a full-on roadblock for current homeowners with low-rate mortgages who would otherwise sell. This is keeping inventory levels low and maintaining tight competition in a high-price environment.

First-time buyers typically face a tougher market than those buying for the second or subsequent time. The biggest constraint: They’re likely on a stricter budget. This can seriously impact the number of homes available to them, and in a housing market with already-sparse supply, first-time buyers willing to brave the environment are in brutal competition with one another.

In the second quarter of this year, prices rose, likely in part due to traditional seasonal fluctuations, but also due to continued low inventory. The adage that an affordable home is one listed at three times your income moved further out of reach.

Affordability down across large metros in second quarter

The second quarter typically ushers in homebuying season and higher prices compared with the prior three-month period. In the second quarter of this year, that was certainly true, as homes were listed at 5.8 times potential first-time buyer income, compared with 5.5 times in the first quarter of the year. The decreased affordability was even more pronounced in the country’s 50 most populous metro areas. Among those metros, homes were listed at 6.1 times first-time buyer income, compared with 5.6 times in the first quarter.

Even the most affordable metro areas in our second quarter analysis saw price increases that decreased affordability. Pittsburgh was back to being the only metro where homes are listed within the affordability range at 2.9 times first-time home buyer income. Other relatively affordable metros include Cleveland (3.5), and Detroit, Buffalo, New York, and St. Louis (all 3.7).

Homes in Los Angeles, always the least affordable metro in our analysis, became more unattainable for first-time buyers — they were listed at 13.1 times the potential first-time buyer income in the second quarter. San Diego, where homes were listed 10.8 times first-time buyer income, San Jose, California (9.3), Miami (8.7) and San Francisco (8.2) were among the other least affordable metro areas.

Click here to see a table with affordability metrics for all locations analyzed.

First-time buyer guidance: Buying your first home has become more difficult over the past few years. For some, the stress and financial strain may not be worth the payoff. Before you dive headfirst into the housing market, get real about your priorities. Ask yourself why homeownership is important to you, carefully evaluate your budget now and how it will look when you become a homeowner, and be honest about the things you need versus those you want in a home — and how much they’ll cost. While there’s a chance this sober conversation could sway you from buying, it will also prepare you for the potentially tough journey ahead, should you decide to move forward.

Prices up for the season

Home prices rose slightly in the second quarter — 5% across the nation and 7% in the nation’s largest metros, on average — reflecting a fairly typical seasonal bump. Generally, home prices rise in spring before peaking in June. This wasn’t the case in 2020 and 2021, when prices climbed throughout the year.

But price growth has leveled off slightly when comparing the second quarter of this year to last. In fact, prices fell 3% across the nation, year-over-year, after adjusting for inflation. The two biggest single-year decreases happened in Austin, Texas, where list prices fell 11% compared with last year, and Las Vegas, where they fell 12%.

First-time buyer guidance: Price growth has slowed, but prices are still high and unlikely to come down meaningfully anytime soon. When casually browsing listings, you can consider homes three to four times your income. But when it's time to actively shop, you'll need a far more detailed plan. An online home affordability calculator that takes your income, debt obligations, credit and potential mortgage rate into account will provide a more precise outlook. Remember, your budget should not only include your monthly housing payment, but also the ongoing costs of homeownership and a buffer for emergency expenses.

Inventory steadily low

Generally, the second quarter of the year sees a seasonal increase in inventory over the first, but this year, reluctant homeowners aren’t listing their homes. Across the country and the largest metros, the number of active listings remained steady.

Some metros did see a quarterly upswing in listings, and four saw inventory rise by 20% or more: Milwaukee (+20%), Boston and Austin(+22%) and Denver (+28%). These increases, though a welcome sight to local buyers, are a very small step in the right direction. In Denver, for example, that quarterly increase puts the average number of active listings at 4,470. Compare that with how many listings were on the market in the second quarter of 2019, before the pandemic: 7,780.

Still, things are moving in the right general direction. Across the nation, the number of listings was 23% higher than the second quarter of 2022.

Click here for a table displaying quarterly and yearly changes in available homes by metro area.

First-time buyer guidance: Existing homeowners are likely to have a low-rate mortgage, which makes it more tempting to stay put, delaying a sale they might otherwise undertake. This means inventory could remain depressed until rates decrease, and even with mortgage rates tempering demand, competition will remain high. Talk with a local agent about competition in your location and price range. They’ll be able to provide personalized advice on the best strategy for getting under contract, whether that means offering more than list price or limiting contingencies such as repair requests.

How much do rates matter?

In a few metros, prices have seen more than 10% decreases compared with the second quarter of last year — a certain improvement. But during this same period, mortgage rates have risen. The average rate on a 30-year mortgage in the second quarter of 2022 was about 5.3%; this year, it’s 6.5%. This single percentage point means a lot.

In metro areas where list prices have come down over the past year, the mortgage rate increase undoes any savings. Nationally, adjusted list prices fell 3% over the year, but the monthly payment on a median-priced home would be about $220 more due to that single percentage point rate increase. Even in Austin, where prices fell 11%, the monthly payment on a median-priced home in the second quarter of 2023 would be slightly higher.

In areas where prices have remained steady, the higher rates can add hundreds of dollars to your monthly payment and tens of thousands over the life of the loan. In St. Louis, where homes are relatively affordable and prices in the second quarter were comparable to the same period last year, the higher mortgage rates translate to an additional $180 each month and $64,500 more over the life of the loan. In San Francisco, prices were relatively flat from Q2 2022 to this year. However, homes are so much costlier when compared with a metro like St. Louis that the additional percentage point increase in mortgage rates could translate to around $700 more each month and $255,000 over the life of the loan.