The 11 toughest states for first-time home buyers
The run-up in housing prices means first-time buyers are increasingly hitting a wall when they search for affordable properties.
Since the recession ended, builders have focused on the higher end of the market, pegging their products to the rising fortunes of America's upper middle class. Last year, more than half of the available properties were considered "premium" homes, or those in the top one-third of the most expensive in their metropolitan areas.
A new study from Bankrate.com sheds some light into which states offer the best and worst markets for first-time buyers. It may come as no surprise that some Midwestern states rank among the best, offering a wider range of inventory, more affordable homes and low unemployment rates for people between 25 to 34, when many Americans first jump into home buying.
The research may push some young workers to "to think outside the box" when it comes to buying, said Bankrate.com analyst Claes Bell. "Take a longer view of housing, and consider accepting a house with a longer commute. That's one way to get your foot in the door and build equity."
The three best states for first-time home buyers are Iowa, Utah and Minnesota, respectively. Iowa's housing stock is relatively affordable, while the market isn't as tight as in some other states.
Read on to learn about the 11 toughest states for first-time home buyers.
11. West Virginia
John Denver may have serenaded West Virginia as "almost heaven," but it's not a paradise for first-time home buyers.
While home prices in West Virginia tend to be low, the challenge resides in the percentage of home loans that lenders reject: more than 17 percent of loan applications, according to Bankrate. That's the highest rejection rate among the 50 states. Unemployment for workers age 25 to 34 is also high, with a five-year average of 8.6 percent.
The median home value in West Virginia is $102,500, according to Zilllow.
First-time buyers in the Bay State know it can be challenging to find a home, especially in the Boston area.
Would-be purchasers between 25 to 44 years old need to put aside 23 percent of their income to afford the typical Massachusetts monthly mortgage payment, Bankrate found. While that's below the rule of thumb to spend no more than one-third of income on housing, it's far higher than the 13 percent of income required in Iowa, where buyers have the easiest time finding a property.
The median home value in Massachusetts is $365,300, according to Zillow.
Oregon buyers between ages 25 to 44 need to spend almost 27 percent of their income to afford a typical monthly mortgage, Bankrate found.
Portland, a hot spot for hipsters and millennials, is particularly unaffordable, although there are signs that the city's home prices are starting to moderate.
The median home value in Oregon is $299,400, according to Zillow.
Colorado is increasingly unaffordable for first-time home buyers. Affordability in most of the state's largest metro counties has slipped to its lowest point in nine years, according to The Denver Post.
The state's median home value is $322,300, according to Zillow data.
The Lone Star state isn't offering wide-open vistas for first-time home buyers. Rising home prices in Houston and other cities prompted a Texas Monthly writer to bemoan, "We can't make it here anymore."
The median home value in Texas is about $163,000, according to Zillow. Yet some cities such as the state capital of Austin are far more expensive, with a median value of $310,400.
6. Rhode Island
Rhode Island ranks as the sixth-worst state for first-time home buyers, thanks partly to a five-year average unemployment rate of more than 8 percent for people between 25 to 34 years old.
The median home value in Rhode Island is $247,400, according to Zillow.
Mississippi isn't a hot property market like New York, but the state ranks as one of the toughest for first-time home buyers because of a combination of low wages and high unemployment for young workers. That one-two punch may make it a struggle for some first-time buyers to afford a home.
The typical household earns $39,665, compared with $56,516 for the median American household.
The median home value in Mississippi stands at $112,000, according to Zillow.
Louisiana suffers from similar issues as Mississippi when it comes to first-time home buyers. Property isn't as expensive as in some other regions, yet incomes tend to be low and unemployment is high. The median household in Louisiana earns about $45,000, below the national median of more than $56,000.
The median list price for homes in Louisiana stands at $192,000, according to Zillow.
3. New York
New Yorkers may be familiar with the headaches of the housing market: tight inventory and high prices. Only 23 percent of 35-year-old households are in owner-occupied homes, the third-lowest rate among the 50 states.
The median home value in New York is $280,600, according to Zillow.
Hawaii may be the Aloha State, but it's not a welcoming place for first-time home buyers. People between the ages of 25 to 44 would spend more than 38 percent of their monthly income to pay the typical mortgage, a share that financial experts consider unaffordable.
Only one out of five households under the age of 35 are living in owner-occupied housing, the lowest share of all 50 states.
The median home value in Hawaii is $589,300, according to Zillow.
California isn't golden for first-time home buyers today. The state's housing is expensive and in short supply for people searching for starter homes, according to Bankrate.
Californians aged 25 to 44 need to pay about 35 percent of the their monthly income to afford the typical mortgage, above the rule-of-thumb percentage.
The median home value in California is $487,700, according to Zillow.