Home prices have skyrocketed since the pandemic began, and many first-time homebuyers may be considering stretching their budgets to get into the market. However, entrepreneur and "Shark Tank" investor Kevin O'Leary advises against that.

In a video posted to his YouTube channel, O'Leary recommends first-time buyers "start small" and restrict their budget to keep the monthly cost of owning a home at not more than 30% of their after-tax income.

"Otherwise you could really screw yourself," he says.

This advice is a popular rule of thumb shared by many financial experts. The U.S. Department of Housing and Urban Development considers any family spending more than 30% of their after-tax income on rent, mortgage payments, and other housing costs to be "cost burdened." Those spending more than 50% of their income are considered "severely cost-burdened."

However, the high cost of homes coupled with high interest rates is making this rule increasingly difficult to follow.

Nearly 19 million American homeowners were cost burdened in 2023, according to the U.S. Census Bureau. The report said one of the costs impacting homeowners was insurance -- 5.4 million of the 85.7 million homeowners in the U.S. paid $4,000 a year or more for homeowner's insurance in 2023.

The median sales price of houses was $420,400 in the third quarter of this year, almost $100,000 higher than it was in the third quarter of 2020, according to the U.S. Census Bureau. Meanwhile, the average 30-year mortgage rate is still relatively high at 6.7% and is moving in the opposite direction many expected it would after the Fed began its rate-cutting cycle.

First-time buyers decreased to 24% of the market share this year from 32% last year, per the National Association of Realtors (NAR). This is the lowest share since NAR began collecting the data in 1981. The median first-time buyer age also increased to 38 years old this year from 35 last year, while the typical repeat buyer age also increased to 61 years from 58 last year.

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