Do Starter Homes Still Exist?
Historically, people buying their first home have gravitated toward houses that are smaller and more affordable.
For starters, the more modest square footage of these so-called “starter homes” makes them easier to maintain for first-time homeowners, who may be accustomed to a landlord taking care of everything from clogged drains to yard work. Perhaps more importantly, these cheaper houses actually fit into new homebuyers’ budgets — often, they’re all that a single professional or young couple can realistically afford.
The thinking used to be that eventually these young, upstart homeowners would outgrow their starter home and, as they advanced in their careers, could afford to move into a larger space. But in today’s ridiculously hot housing market — where buyers are lining up around the block for showings and homes are selling for tens, even hundreds of thousands of dollars over the asking price — do “starter homes” even exist anymore? Or is this concept now more of an outdated fantasy?
Unfortunately, things aren’t looking good. In its 2022 survey of more than 1,000 real estate agents across the country, real estate company HomeLight found that entry-level buyers are now budgeting an average of $410,000 to get into their first home. In the Midwest, agents estimate the starter-home budget to be a more reasonable $236,100, but along the Pacific Coast, first-time buyers are prepared to spend $878,333 to get into a house, according to the survey.
So while technically, yes, starter homes are still out there, they’re now just super expensive, which could put them out of reach for a lot of first-time buyers. Home prices have gone up faster than wages, making even the least expensive house not affordable for the typical first-time homebuyer.
There’s more: Real estate agents are seeing some dramatic shifts over the last few years, which coincides with the ongoing pandemic. A couple of years ago, more than half of agents reported to HomeLight that buyers could easily purchase a starter home in their market. By 2022, just 13 percent of agents feel that way, according to the survey.
First-time buyers are also making some sacrifices: In 2020, 20 percent of agents told HomeLight that buyers should expect their starter home to need some work, compared to a whopping 57 percent of agents who feel that way today. For first-time buyers, a house that needs a little (or a lot of) work may be the only option that fits their budget — and that could be a good thing for equity growth in the long run. Don’t overlook something that could be made into a gem with some minor cosmetic work.
Agents also reported to HomeLight that starter homes are less likely to have three bedrooms — now, two bedrooms are the norm. To get into a house, buyers may need to consider a condo or a townhouse, rather than a single-family property. They may also need to be willing to buy a place that falls outside of their first-choice neighborhood.
Bottom line: If you’re flexible and can keep your long-term goals top of mind, you can still find a starter home after all. It just may not look exactly like what you had envisioned and you may need to remind yourself, again and again, that you’re not locked in to staying in this house forever.
Remember, it’s still your first home, maybe not your dream home! Expand your search and open your mind to get into the market now, and you can look forward to finding all your preferences in your next property!