Decades ago, young Americans with homeownership dreams had options. Save a few paychecks and one could choose from an obliging inventory of affordable starter homes.
In more recent years, that inventory has all but disappeared in major cities. Still new homebuyers could shop accessible stock in cities outside the core. But now, as a report from Point2 laments, “starter homes are far past affordability, even in [those] secondary cities.”
“It’s not just the concept of a starter home that’s pretty much disappeared, but the home itself — in main markets, as well as secondary ones,” the author notes. While the term is still used in real estate listings, what used to signify "entry-level homes fit for young people or new families" have come to "simply describe the cheapest listings around.”
According to the researchers, the share of newly built starter homes has been cut in half since the beginning of the century.
Even in 2001, smaller, more affordable houses made up only 13% of U.S. housing. By 2021 that had shrunk to 7%.
Researchers, leaving out primary markets altogether, looked at the country’s 100 largest secondary cities (that is a large city within a metro area, that’s not one of the metro’s core cities) for the median price of a starter home along with renter households’ median income.
They found that in zero secondary cities can the average renter comfortably purchase a home. In fact, in 10 of the cities studied, the necessary income is about triple what the median renter earns.
“These cities used to be fruitful house-hunting grounds for first-time buyers exploring less-expensive options away from main cities,” authors note. “But as it turns out, unaffordability can put a dent in homeownership plans regardless of city type or size.”
What follows are some other findings from the report, which can be found in full at point2homes.com.
- In 41 of the 100 largest secondary American cities, renters earn half or less than half of what they would need to buy a median-priced starter home.
- Based on the latest renter income figures, starter home prices, and mortgage rates, non-core cities in the LA and San Diego metros are the toughest for first-time homebuyers.
- The California cities of Burbank and Glendale top the list as most inaccessible secondary cities for renters eyeing homeownership. Renters in those areas lack 67% of the income needed to purchase any homes on the market.
- Renters in nine California cities would need to earn about an additional $100k per year in order to afford a starter home.
- In 15 of the 100 largest secondary cities, renters would need less than 4 months’ worth of extra income to afford the transition to owning a starter home.
- Where in America’s secondary cities is first-home ownership even within reach? Renters in Independence, Missouri, and Broken Arrow, Oklahoma—with just one month’s worth of extra income, could feasibly afford a starter home.
The authors conclude that, regardless of what a starter home means today, “it is almost extinct, as is the dream of comfortably owning one.”
“And, as secondary markets try on the pricey shoes of the primary ones, there’s no telling where the domino effect will eventually halt and when the demise of the starter home concept will be complete.”