$1 Million Starter Homes Are the Norm in Hundreds of Cities

Starter homes aren’t as affordable as they used to be. In 237 U.S. cities, they cost a whopping $1 million or more, according to a new report from Zillow, up from only 84 cities five years ago.

That doesn’t mean affordable homes don’t exist. But for many Americans, especially those in desirable coastal areas, buying a starter home can feel challenging.

Skyrocketing Prices

Nationally, starter homes, defined in the study as in the lower third of home values in a region, have seen their value grow by 54.1% over the last five years, reaching a median sale price of $196,611.

For some Americans, depending on their location, that means starter homes are still relatively affordable. The problem is they’re becoming extremely pricey in more cities than ever before. This year, half of all states had at least one city where a typical starter home cost $1 million or more. In California this applied to 117 cities, while New York and New Jersey had 31 and 21 of such cities, respectively.

Looking beyond starter homes, research from the National Association of Realtors found that the median sale price for existing homes hit $426,900 in June, a record high. No wonder 86% of renters who want to buy a home have a hard time affording one.

Why Starter Homes Are So Expensive

America has a massive, structural shortage of housing units. There aren’t enough homes being built either. That’s especially true for smaller, more affordable houses, due to restrictive zoning laws, supply chain woes, and labor shortages.

Even if you find a home you like, what you can afford now might be different than what you could afford before the pandemic. When the Federal Reserve raised interest rates to combat inflation, borrowing costs increased too, driving up mortgage payments.

“If you were to sell your house today and buy an identical one across the street, your payment would double — and that’s before you factor in how much the house across the street has gone up in value,” economists explained to New York Times earlier this summer. In this market, homeowners are staying put, limiting the supply of for-sale homes in the market. And that’s driving up the cost of starter homes too.

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