On a crisp October morning in Ambler, Pennsylvania, a new sign went up: another home for sale. Yet, for many Americans—especially those just starting out—the sight is less a beacon of hope and more a reminder of a market that seems increasingly out of reach. The shortage of so-called "starter homes," those smaller, more affordable properties, has become a defining feature of today’s housing landscape, locking out many would-be first-time buyers despite the promise of cooling bidding wars and possibly lower mortgage rates on the horizon.
Gabriel Veasey, a scholar in Central Texas, knows this struggle firsthand. His children, living near Austin, have been on the hunt for their first home for months. The problem? Affordability. "Why can't they have the opportunity to buy the starter homes—the two bedroom, $200,000 [home] that's just what they need, instead of a three [bed], two [bath] or four [bed], three [bath] home for $400,000 to $500,000 that's just not within their range?" he asked, echoing the frustrations of countless families nationwide.
The numbers in Austin, as reported by NPR, tell a stark story. The median income in the city is about $134,000, which should be enough to support a mortgage of roughly $350,000. Unfortunately, the median home price in Austin as of September 2025 soared to around $560,000, making homeownership an increasingly distant dream for many. Local builder Scott Turner put it bluntly: "If you're a median income earner in the region, you can't afford to buy a house in the city of Austin."
This isn’t just an Austin problem. According to Mike Loftin, CEO of Homewise—a New Mexico-based organization focused on helping first-time buyers—the decline in entry-level housing is a nationwide trend. Loftin points to Albuquerque as a case in point: "Ten years ago in Albuquerque, between 2014 and 18, about 20% of all new homes built would be considered an entry-level home, a smaller, more affordable home. Today, that number is 4%. And this is true across the country. Home builders are not building that entry-level home."
The data backs him up. In the 1980s, starter homes made up about 40% of all new builds. By 2023, that share had plummeted to just 12%. Several forces drive this decline. Turner cites a 40% increase in construction material costs since 2020, with tariffs on Canadian lumber and other supplies tacking on another 7% to 10%. "A home that maybe used to cost $300,000 to build now costs about $450,000," Turner explained. For builders, the math is unforgiving—profit margins are slimmer at the affordable end of the spectrum, making larger, pricier homes more attractive to construct.
Complicating matters further, many existing homeowners are staying put. Those who bought or refinanced during the COVID-19 pandemic locked in mortgage rates as low as 3%. Now, with rates hovering closer to 6%, few are eager to trade up and face higher monthly payments. As a result, the natural recycling of starter homes to new buyers has slowed to a crawl.
Local regulations also play a significant part. Until just two years ago, much of Austin was zoned exclusively for single-family homes, with some of the largest minimum lot sizes in Texas. That’s begun to change—property owners can now build up to three homes on what used to be a single-family lot. But Turner notes that the city’s slow and costly approval process for townhomes, condos, and new subdivisions remains a major obstacle. "The biggest barrier to creating affordable housing remains the city's slow and expensive approval process for the construction of townhomes, condos, and new subdivisions, which can take up to two years regardless of the size of the project," he said.
Houston, on the other hand, offers a different model. By relaxing zoning laws and allowing very small lots throughout its urban core, the city has managed to keep a supply of relatively affordable townhomes—some available for about $400,000—even in the heart of town. Turner points to Houston as proof that deregulation can make a difference.
Not everyone is on board with these changes. Some existing homeowners worry that relaxing zoning will bring industrial, commercial, and residential uses into undesirably close proximity. In Austin, these concerns have led to lawsuits and successful efforts to block reforms in the past.
Still, there are glimmers of hope. Assuming mortgage rates do indeed fall below 6% next year, as some analysts predict, there could be renewed activity in the lower end of the market. Loftin of Homewise suggests that Community Development Financial Institutions (CDFIs) can play a crucial role in helping first-time buyers prepare. "We do the assessment, then we do an action plan to address the barriers that you have," he said. Improving credit, building savings habits—sometimes as simple as setting up automatic deposits from every paycheck—are steps CDFIs can guide buyers through. And, as Loftin points out, "Our typical down payment from a home buyer is about 2% of the purchase price, and that includes the closing costs."
States are also experimenting with new initiatives. Utah, for example, passed a bill last year providing $300 million in subsidized loans for builders and new city zoning tools to boost the construction of smaller, no-frills housing. In New Mexico, the proposed "New Homes for New Mexico" initiative would offer around $30,000 in direct assistance to buyers, targeting homes in the $300,000 range. Loftin believes this could make a real difference: "For builders, the subsidy means more buyers that can afford that home now, even with the interest rates we have today." New Mexico’s legislature is set to consider the measure in January, and it "appears to be gaining significant support."
In the meantime, buyers aren’t entirely powerless. Harrison Beacher, a realtor in the Washington, D.C. area, encourages clients to rethink what a starter home means. "Too many people wait for the 'dream home,' when what really changes their long-term financial story is simply getting started and making thoughtful, strategic moves over time," he said. The key is to weigh location, affordability, and potential for appreciation rather than holding out for perfection.
Sometimes, that means "driving until you qualify," as Turner puts it—looking further from city centers for better deals. For instance, Bastrop, a city about 30 miles southeast of Austin, saw a median home price of $336,000 in July 2025, about 40% less than Austin. For Gabriel’s children, and others like them, buying outside the city—even if it’s not the dream home—could be a smart move. Over time, they can build equity and, perhaps, move closer to their ideal location.
The landscape for first-time buyers remains challenging, but as market forces shift and local policies evolve, opportunities may slowly return. For now, creativity, flexibility, and a willingness to compromise may be the best tools for those hoping to unlock the door to their first home.