Half of Zillow’s top cities for first-time homebuyers are in the Midwest
St. Louis is the best US market for first-time homebuyers in 2024, real estate platform Zillow announced this week in its list of the 10 best cities for new buyers.
Four other cities that made the list — Detroit, Minneapolis, Kansas City, and Indianapolis — are located in the Midwest, solidifying the region as the best area for new buyers to call home.
Zillow ranked the cities based on rent affordability, the share of listings that a typical household can afford, expected competition for affordable homes, and the number of similar-age families living in the area. The other cities on the list were Austin, Pittsburgh, San Antonio, Birmingham, and Baltimore.
With three out of four ranking factors relating to affordability, the report underscores how high costs — driven by elevated mortgage rates, low inventory, and high home prices — make any potential savings essential to enable first-time buyers to break into the market.
St. Louis brokerage owner and local resident Sandy Hancock listed off her city’s attributes:
"Our average home price is under $300,000. We have very good schools. We have lots of things to do that are free," Hancock told Yahoo Finance. "It's wonderful."
Also read: First-time homebuyer grants: Everything you need to know
Affordability and community
St. Louis scored high in affordability across the board, boasting a median home price of $205,500, according to Redfin. While it is not the cheapest on the list in terms of median listing prices, the share of home listings that a median-income family can comfortably afford is 67%, the highest in Zillow's ranking.
Zillow defined homes as comfortably affordable when households spend less than 30% of their income on monthly mortgage payments after a 5% down payment and a 7% interest rate.
Competition is less fierce in St. Louis than in many other metros. There are 3.4 affordable listings for every 100 renters, the fourth highest in the report. Renters waiting to buy also get more relief. The share of income that average households spend on rent is the second lowest after Minneapolis. St. Louis rent averaged around $1,304 in March, 34% below the national average of nearly $2,000.
This makes for an easier path to saving for a down payment — the biggest financial hurdle for many first-time homebuyers.
"I definitely agree with that," Hancock said. "There's certainly luxury rentals available, but there's also more affordable apartments available. You should be able to find something in your price range, close to where you want to be."
The only buying factor that fell short for the St. Louis market in Zillow's ranking was the share of similar-age households in the city. Only 26% of households averaged 29 to 43 years of age, a range capturing the highest share of new homebuyers and young families. Similar age households mean “buyers can build a community,” says Zillow.
Read more: Why are home prices so high?
Austin, a pandemic boomtown, ranked fifth on Zillow’s list. It’s the most expensive market in the ranking, with a median home price of $525,000, and only 23% of the market is considered affordable.
While rent is also not cheap — an average apartment costs $2,216 — Austin's median household earns $86,530 annually, 20% higher than the national average of $69,720.
But it boasted the highest community score, with a third of households aged 29-43.
"Austin was a big surprise on this list, considering it was the hottest market in the nation early in the pandemic," Skylar Olsen, chief economist at Zillow, told Yahoo Finance. "But while Austin and nearby San Antonio scored lower in affordable listings and competition over them, the share of millennial households — fellow neighbors going through the same life stage and challenges — pulled them up in the rankings."
Bright spots in the Midwest
In today’s historically tight housing market, the Midwest is emerging as an area of opportunity for new homebuyers.
According to Zillow, the share of affordable listings in the five Midwestern metros — St. Louis, Detroit, Minneapolis, Indianapolis, and Kansas City — ranged from 48% to 67%. The share of income spent on rents ranged from 20% to 22%.
"The Midwest stands out as an attractive region for aspiring homeowners because affordable housing is present and accessible there, and it's scarce almost everywhere else," Olsen said.
A separate index tracking housing affordability also found the Midwest to be the most affordable region in the nation. According to the Housing Affordability Index data collected by the National Association of Realtors, Midwestern households pay an average mortgage payment of $1,417, the lowest in the US.
The median price for an existing home in the Midwest is around $274,000, which is less than half of the median price of a home in the West. The share of income spent on mortgage payments — 17% — is also half compared to the West, the most expensive region.
“A larger number of affordable listings and less potential competition over those listings helps Midwest markets shine in this ranking,” Olsen said.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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