The Rising Cost of Starter Homes in the US
A typical starter home in the United States sells for about $200,000. However, in an increasing number of cities, this amount is merely a down payment. According to Zillow’s analysis, you’ll now need at least $1 million to purchase a starter home in 237 cities across the country. This significant increase in home prices is a stark contrast from five years ago when only 84 U.S. cities had new homes priced in seven figures.
The Impact of the Pandemic on Housing Affordability
The pandemic has worsened existing housing shortages in cities across the U.S., particularly in areas like Boston, Portland, and Sacramento. Despite a considerable number of homes being built in 2023, totaling 1.4 million, the supply still falls short of meeting the demand from homebuyers.
Zillow senior economist, Orphe Divounguy, commented on the situation, stating, “It’s no surprise that we’re in a housing affordability crisis across the country. Decades of underconstruction, combined with the surge in residential mobility during the pandemic, have driven up prices and rents.”
However, there is a glimmer of hope as more homes are being put up for sale, leading to an increase in price reductions. Divounguy mentioned that with more new construction homes entering the market, we may see a slowdown in price growth as inventory builds and sellers offer more price reductions.
Commonalities Among Cities with Million-Dollar Starter Homes
While the $1 million starter home price point is not representative of entry-level home prices nationwide, numerous cities in half of the states have homes selling for seven figures. California leads with 117 such cities, followed by New York with 31, and New Jersey with 21, as per Zillow’s analysis.
The New York metropolitan area boasts the highest number of cities with million-dollar new homes, totaling 48. Other metropolitan areas with a significant number of such homes include San Francisco (44), Los Angeles (35), San Jose (15), Miami (8), and Seattle (8).
Cities with $1 million homes share a common trait – strict building codes that can hinder new construction. Divounguy highlighted that coastal markets like California and New York face limitations in available land for new homes due to natural features such as mountains, lakes, and oceans.
