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Is the starter home disappearing?
U.S. homebuyers increasingly need to drop at least $1 million on starter homes in the country’s top markets, raising questions about the affordability of homes for first-time buyers.
A record 242 cities across 26 states have a typical starter home valued at $1 million or more, according to an analysis by listings platform Zillow, which defines a starter home as a home valued in the lowest third of a region. That’s almost three times the number of markets with $1 million, entry-level homes since February 2020, before the onset of the pandemic and the ensuing housing boom that led to a surge in housing prices and sales. Pre-pandemic, just nine states had markets on this list.
“The pandemic reset the cost of buying a home, spreading million-dollar starter homes from a handful of coastal states to more than two dozen states across the country,” said Kara Ng, senior economist at Zillow, in a statement.
The national price point for an entry-level home also has never been higher, coming in at $198,649, a 1.7 percent year-over-year increase.
The increase in entry-level home prices comes amid the country’s persistent housing affordability crisis. Last year, the national median home price hit a record high. While it has been falling since, prices are still elevated, along with mortgage rates, making it harder for deals to cross the finish line.
The states with the fastest-growing number of markets with high-priced starter homes are New York and New Jersey. New York’s total hit 41 cities, up from 12 before the pandemic. Meanwhile, New Jersey’s cities climbed from one to 26.
The Northeast continues to struggle with a housing shortage and has some of the least affordable markets in the country. A lack of land and permitting challenges make new construction harder, unlike in the Sun Belt markets, which have seen an explosion of newly constructed homes.
However, the state with the most cities with $1 million starter homes is California, with 105. New York and New Jersey follow. California historically has had many of the most unaffordable markets in the country. For instance, in Marin County, part of the San Francisco Bay Area, homebuyers would need to spend 120 percent of their yearly wages to buy and maintain a home there.
Texas is the non-coastal state with the highest number of $1 million starter-home markets this year, with seven. Before February 2020, Texas did not have any markets on the list. The Lone Star State has benefitted from having a lot of empty land, permitting ease, job growth and no state income tax.