Are starter homes now a luxury? Entry-level homes hit $1M in 237 US cities

You might get serious sticker shock looking at starter homes these days.

A new Zillow analysis shows that the typical starter home now costs $1 million or more in 237 cities across the nation. Just five years ago, there were only 84 cities with starter homes that expensive.

"Home buyers are battling affordability and availability today. So much so that $1 million is the norm for a starter home in hundreds of cities," says Orphe Divounguy, a senior economist at Zillow.

Zillow defines a "starter home" as properties in the lowest third of home values in a given region.

High mortgage rates have created a "lock-in" effect, with many homeowners reluctant to sell and lose their favorable existing rates. This has led to a supply crunch, keeping inventory low and pushing prices skyward.

The result is a housing market where even entry-level homes are increasingly out of reach for many first-time buyers.

California has the most million-dollar markets

It appears one state takes the cake when it comes to seven-figure starter homes.

117 cities in California have million-dollar starter homes, half of the total cities in Zillow’s analysis. New York has 31 cities, and New Jersey has 21. Florida and Massachusetts round out the top five with 11 each.

Seems like those coastal views will cost you.

Zillow also found an interesting pattern. States with the most red-tape-laden building regulations had the most cities with million-dollar starter homes. Not surprisingly, these cities also had lower rates of homeownership.

However, you can find million-dollar starter homes just about anywhere now. Exactly half of all states now have at least one city with a typical starter home worth $1 million or more.

Typical first-time home buyer is now 35

Many households can still afford the national median starter home value of $196,611. However, starter homes are becoming increasingly expensive relative to the broader housing market.

Over the past five years, the value of these entry-level properties has surged by 54.1%, compared to a 49.1% increase in overall home values during the same period.

It’s no wonder why first-time home buyers are playing the waiting game. The median age of a first-time home buyer rose to 35 last year, up from 34 in 2019.

Buyers may, however, get a sliver of relief in the coming months. "It's looking more and more like there will be some good news ahead for first-time buyers,” said Divounguy.

“More homes are for sale, price cuts are on the rise, and buyers have a few more days to weigh their options as homes sit on the market."

You may not, however, get as much space as you’d think for your starter home, even given the price.

According to a July report by John Burns Research & Consulting (JBREC), builders downsized about a quarter of new homes last year. Some experts call it the "death of the starter home."