A million dollars once seemed like a staggering sum to pay for a home, but new data reveals that this is becoming an incredibly common figure for what are considered "starter homes" in over 200 U.S. cities. Research by Zillow shows that the typical starter home now costs $1 million or more in a record 237 cities, a striking increase from just 84 cities five years ago. This shift highlights a critical affordability crisis affecting countless Americans, especially first-time homebuyers attempting to enter an increasingly inaccessible market.
According to Orphe Divounguy, a senior economist at Zillow, the demand for homes has been rising at a pace that significantly outstrips supply. He explained, "The number of people who want a home has been growing faster than the number of homes available to them. When supply lags demand for housing, prices rise across the board." This imbalance has made homeownership, traditionally seen as a fundamental milestone for many American families, more elusive than ever.
The term "starter home" is used by Zillow to denote homes situated in the lowest third of property values within a region. These homes were previously intended to serve as entry points for new buyers, but they are now priced out of reach for many. The stark reality is that it is now commonplace for a typical starter home to set buyers back by at least $1 million, adding immense pressure to an already stressed housing market.
Perhaps unsurprisingly, California dominates this concerning trend. In fact, half of the cities across the United States that rank highest for expensive starter homes are located in California. According to the report, there are a staggering 117 cities within the state alone where starter homes cost over $1 million. Following California, New York and New Jersey come next, with 31 and 21 cities respectively. Florida and Massachusetts round out the top five, each having 11 cities where this price point has become the norm.
As for metropolitan areas, those surrounding New York City hold the highest number of million-dollar starter homes, with 48 cities on the list. In close pursuit are the San Francisco metro area with 44 cities, and Los Angeles with 35. Other notable regions include San Jose with 15, followed by Miami and Seattle, which each have eight cities where starter homes cannot be found for less than a million dollars.
This trend is set against a backdrop of a housing shortage which has contributed significantly to escalating prices. Zillow reported that nationwide, starter home values have surged by an eye-watering 54% over the past five years, a rate that far outpaces the general increase in property values. Currently, the median age for first-time home buyers has reached 35, a marked increase from the 34-year mark just a few years ago, indicating that escalating property prices are postponing the dream of homeownership for many individuals.
Notably, the report identified that markets with stringent building regulations are frequently home to a greater number of cities with starter homes exceeding $1 million. Additionally, these same markets often report lower homeownership rates. This observation reinforces the argument that addressing regulatory challenges in these markets could help ease the crisis.
Despite these gloomy statistics, there may be a silver lining on the horizon for potential homebuyers. Recent reports indicate that in certain areas, home sales have decreased to a six-month low in June, suggesting a possible cooling of the market. Additionally, there seems to be a gradual increase in available properties and a rise in price cuts, providing some optimism that buyers might find better opportunities in the future.
Lawrence Yun, the chief economist at the National Association of Realtors, remarked on this shift, saying, "We’re seeing a slow shift from a seller’s market to a buyer’s market." This sentiment is echoed by Divounguy, who suggests that as more homes become available, buyers are starting to enjoy some leverage in negotiations, with some properties lingering longer on the market. This change allows buyers the luxury of time to weigh their options, which is a welcome development after years of frantic bidding wars.
Despite the challenges currently facing the housing market, nationwide, the average starter home is priced at approximately $196,611. This figure is deemed affordable for a median-income household, contrasting sharply with the realities in cities where a million dollars is only scratching the surface of housing options.
In the face of such high prices, it’s evident that structural changes will be necessary to address long-term housing affordability. Divounguy emphasizes the necessity for policy changes that facilitate and encourage more construction in the housing market. As more affordable options become available, Janine McNicol, a housing advocate, urges communities to be more proactive in demanding local governments loosen regulations that can hinder new developments.
Reflecting on these findings, it becomes clear that the housing market is at a critical juncture. While some sectors appear poised for change, the fundamental issues of supply and demand remain. For first-time buyers and those looking to invest in property, the stakes could not be higher. Whether these shifts will translate into tangible relief on the affordability front remains to be seen. Nevertheless, as the dialogue on housing policy evolves, so too does the hope that affordable housing might once again become attainable for working families across America.
