Just over half of Americans can afford an entry-level home as affordability issues continue to plague the nation’s housing market, and the situation is creating a robust opportunity for rentals.

Only 54% of Americans can afford a home priced at 20% of the median home price in their area, according to a study of 130 metros by John Burns Real Estate Consulting, which called that benchmark a reasonable proxy for an entry-level home.

But while this figure seems bleak, the report noted that affordability is improving, increasing 3% thanks to a recent drop in mortgage rates.

“The plunge in mortgage rates has created homeownership possibilities for 2.7 million more households as well as move-up possibilities for current homeowners with enough equity,” the analysts wrote. “This will spur home-buying activity this year, possibly averting the decline in volume we have been forecasting.”

The report called out California for its abysmal affordability rate, as only 34% of its residents can afford to purchase a home there. San Francisco and San Jose stood out as the least affordable at only 11% and 18%, respectively.

In contrast, the most affordable market is Allentown, Pennsylvania-New Jersey, where 77% of residents have the means to purchase a home.

The consulting group said that the affordability gap has created sizable opportunity for the rental market, saying that it has given rise to “the hottest new home development craze”: newly built neighborhoods consisting entirely of single-family rental homes.

“The lack of affordability nationwide will keep pushing more demand toward renting, especially in the most expensive markets,” the analysts predicted. “Very few homes exist that were purposely built with renters in mind – an opportunity that many companies are now seizing.”

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