Imagine saving up for your first home, only to find that a “starter” property costs $1 million. This scenario, once unthinkable, is now reality for many aspiring homeowners across the United States.
According to a recent Zillow Group Inc. analysis, starter homes – defined as the lowest third of residential values in a region – have hit the seven-figure mark in 237 cities. This number has more than tripled in just five years, painting a stark picture of the current housing market.
“Housing affordability has become strained across the board over the past several years, but especially so for first-time buyers,” explains Orphe Divounguy, a senior economist at Zillow.
What can you get with $1 million in today’s housing market? A starter home. https://t.co/xILUrI7eRH pic.twitter.com/Xa6LjTjJZV
— WWU Center for Economic and Business Research (@PugetSoundEF) July 26, 2024
The perfect storm of low inventory, high borrowing costs, and elevated property values has created one of the least affordable housing markets on record. First-time buyers are feeling the pinch most acutely. Over the past five years, starter home values have surged by 54%, outpacing the 49% increase seen across all properties.
This trend is reshaping the landscape of homeownership in America. Many potential buyers are forced to save more for longer periods, delay significant life milestones, or even abandon their dreams of owning a home altogether. The average age of first-time buyers has now climbed to 35 years old, reflecting the extended time needed to enter the market.
Geographically, the impact isn’t evenly distributed. California leads the pack, with nearly half of all cities boasting million-dollar starter homes. New York follows with 31 such cities, while New Jersey has 21. Florida and Massachusetts each have 11 cities in this category.
However, it’s important to note that this isn’t a nationwide phenomenon. Outside high-cost areas, home prices can be significantly more affordable. Across the US, a typical starter home is valued at about $197,000, which can be within reach for a median-income household.
The silver lining? The market is slowly shifting in favor of buyers. More choices are becoming available, and there’s increased room for negotiation.
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While the road to homeownership remains challenging, particularly for first-time buyers, there’s hope on the horizon for those patient enough to wait or willing to relocate for the right opportunity.
