A -start-up house- in the Bay Area can only be afforded with an annual income of 285,000

In a recent interview, we explored the challenges faced by homebuyers in the U.S. According to a report from real estate company Redfin, a staggering number of starter homes—priced at least $1 million—can be found in 237 cities across the country, with California housing about half of these locations. For many residents in the Bay Area, where monthly mortgage payments can soar above $7,000, buying a starter home remains an elusive dream.

Redfin’s analysis shows that a household in the San Francisco metropolitan area, which includes San Francisco and San Mateo, would need to earn around $285,000 annually to afford a home at the median price. Yet, the reality is that the actual median household income in this area hovers around $160,000.

In July, the median price for a starter home in the San Francisco metro was approximately $950,000, with estimated monthly mortgage payments around $7,140—making it the second-highest in the top 50 U.S. metropolitan areas. In contrast, the median price for starter homes elsewhere in the U.S. remains under $2,000 per month, which requires a household income of about $80,000. Nationally, Redfin estimates the median household income to be roughly $84,000.

Redfin’s findings are based on the assumption that buyers dedicate 30% of their income to housing and make a 3.5% down payment. According to the National Association of Realtors, the average down payment for first-time buyers nationwide is around 8%. Additionally, Bankrate notes that most loans generally require a minimum down payment of 3%, while government-backed mortgages often require 3.5%.

Focusing on the San Jose metropolitan area, which encompasses Santa Clara and San Benito counties, we see that it has the highest monthly mortgage payments among the top 50 metro areas in the U.S., estimated at nearly $7,500. To acquire a starter home priced just under $1 million, families would need an annual income close to $300,000.

The Oakland metropolitan area, covering Alameda and Contra Costa counties, offers a slightly more affordable option, with a median monthly mortgage payment of $4,850. Here, families would need to earn about $194,000 to manage a starter home’s costs.

Redfin highlights a concerning trend: rising housing expenses are causing many middle-income families to consider smaller or less desirable homes, while lower-income individuals are being pushed to abandon the idea of homeownership entirely.

In a separate analysis, Zillow revealed that typical starter home prices in those 237 cities start at $1 million, with half of them located in California.

However, there’s a silver lining. The supply of starter homes is on the rise, potentially slowing down price growth. Redfin reports a 28% increase in new listings of starter homes in the San Francisco metropolitan area from May 2023 to July 2024. Other metropolitan areas are witnessing similar rebounds in their housing markets after last year’s downturn.

Redfin’s economists suggest that the recent declines in interest rates could help first-time homebuyers afford housing more easily. Yet, they caution that increased competition may drive prices up again, making the dream of homeownership even more challenging for families in the Bay Area.