Three small adjacent homes

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Are Starter Homes a Thing of the Past?

October 19, 2021

The starter home is often considered a smaller, more affordable house that appeals to first-time buyers. But the surging housing market and home prices are putting more and more out of reach, leaving some wondering whether these homes will ever return.

The supply of starter homes has dwindled by more than half over the past five years, according to realtor.com® listing data. Realtor.com® defines a starter home as one that is generally less than 1,850 square feet. Using that definition, there were only 300,000 starter homes listed for sale in September. Also, the median list price for a starter home reached $260,000 last month, about 11% higher than a year ago, according to realtor.com®. Starter homes are 64% more expensive than they were in 2016 compared to larger homes, which have grown 43% in that same period.

“First-time buyers are looking for homes in the most competitive price point in the housing market,” Ali Wolf, chief economist at Zonda, a building consulting firm, told realtor.com®. “Supply is extremely limited [and] in an environment where supply and demand are clearly mismatched, this makes it particularly challenging for entry-level buyers.”

A limited housing stock with high buyer demand has been pushing home prices up by double-digit annual increases. Also, homebuilders are targeting higher price points due to the growing costs of building new.

Further, “many times [starter homes] get demolished or remodeled, and you end up with a 3,000-square-foot home in its place,” says George Ratiu, manager of economic research at realtor.com®. “That’s really contributed to the shortage. The margins are a lot healthier on bigger homes than on something smaller.”

Realtor.com® identified the following markets as having the largest drops in starter homes over the five years from September 2016 to September 2021:

1. Memphis, Tenn.

  • Percentage change in starter homes for sale: –82%
  • Median starter home price in September: $150,000

2. Rochester, N.Y.

  • Percentage change in starter homes for sale: –74%
  • Median starter home price in September: $153,450

3. Hartford, Conn.

  • Percentage change in starter homes for sale: –72%
  • Median starter home price in September: $245,000

4. Milwaukee

  • Percentage change in starter homes for sale: –70%
  • Median starter home price in September: $202,500

5. Indianapolis

  • Percentage change in starter homes for sale: –66%
  • Median starter home price in September: $182,500