A million dollars once seemed like a significant amount of money, but in today’s housing market, it’s barely enough for a “starter home” in over 100 California cities. According to new research by Zillow, the typical “starter home” now costs $1 million or more in a record 237 cities across the U.S., a substantial increase from 84 cities in 2019. This surge highlights the growing affordability crisis in the housing market.
Orphe Divounguy, a senior economist at Zillow, explains, “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.”
Zillow defines “starter homes” as those in the lowest third of home values in a given region. The study found that half of all states have at least one city where the typical starter home costs $1 million. However, California stands out with 117 such cities. New York (31) and New Jersey (21) rank second and third on the list, with Florida and Massachusetts each having 11 cities.
The report notes that markets with restrictive building regulations tend to have more cities with $1 million starter homes, and these markets also have lower homeownership rates. Numerous cities around New York City, San Francisco, Los Angeles, Miami, and Seattle made the list.
“To make housing more affordable long term, it’s critical that we push forward policies that encourage and allow more construction,” Divounguy said.
Starter home values have increased by 54% over the past five years, outpacing the rise for typical U.S. homes during the same period. This increase is partly due to an ongoing inventory shortage, which has pushed prices to record highs despite elevated mortgage rates.
Last month, a separate Zillow report found that the U.S. is short 4.5 million homes. The inventory challenges and resulting price hikes have led many to delay homeownership. In 2023, the median age of a first-time homebuyer was 35, up from 34 in 2019.
Today’s trifecta of high prices, low inventory, and elevated mortgage rates has left Americans feeling historically pessimistic about the housing market, with 76% now saying it’s a bad time to buy.
However, there is a glimmer of hope for prospective buyers. Recent data shows home sales sank to a six-month low in June, and inventory is starting to rise. Lawrence Yun, the National Association of Realtors chief economist, believes the market is beginning to change.
While the housing market remains challenging, policies encouraging more construction and increasing inventory could help make homes more affordable in the long run.
