Starter homes of at least $1 million are now normal in 237 major U.S. cities even as Gen Z and Millennials say they are waiting for real estate prices to come down before buying, according to new reports from real estate companies Zillow and Re/Max.
Zillow’s analysis defined starter homes as being in the bottom one-third of home values in the region, and five years ago, there were only 84 cities where this was the case.
Nationally, the typical starter home costs between $196,000 (Zillow data) and $240,000 (Redfin data), which is considered affordable for households making an income of around $76,000 or more.
While hot housing markets are still seeing price increases, including some of these cities in Zillow’s report, there is some good news for homebuyers in the latest housing data.
“Home buyers are battling affordability and availability today. So much so that $1 million is the norm for a starter home in hundreds of cities,” Orphe Divounguy, a senior economist at Zillow, said in a press release. “However, it’s looking more and more like there will be some good news ahead for first-time buyers. More homes are for sale, price cuts are on the rise, and buyers have a few more days to weigh their options as homes sit on the market.”
Mr. Divounguy referred to another Zillow report from last week that showed a larger inventory of homes for sale in June that were taking around five days longer to sell than they did in the same period last year.
One in four sellers with homes on the market reduced their prices in June, showing a slight softening in home prices in a more crowded market.
“A growing segment of homes that aren’t competitively priced or well marketed are lingering on the market. Sellers are increasingly cutting prices to entice buyers struggling with affordability,” Skylar Olsen, chief Zillow economist, said in a press release. “For years, the housing market has been defined by fast sales and few options. Now it’s starting to look more like it did before the pandemic in terms of competition, if not costs. As the wait for mortgage rate relief drags on, slower price growth and even dips in some areas will help buyers catch up on saving for a down payment.”
Ms. Olsen’s assessment may help some in the Millennial and Gen Z generations who want to buy a home but have been held back by high prices and higher costs brought on by interest rate increases since 2021.
A study released last week by Re/Max indicated that almost two-thirds of Gen Z and Millennials (63 percent) feel ready to be homeowners, but a large portion of survey respondents cited fears about affordability and availability as obstacles to accomplishing their goals.
Majorities of both generations already have a down payment saved or are working on saving a down payment.
Price was the top consideration of homebuyers in the study; respondents also cited location, size, safety, and mortgage rates.
With a typical monthly mortgage payment on a starter home costing $1,896 in February, an 8.2 percent increase from last year, Gen Z and Millennials know they are making a major commitment by buying a home.
Starter homes cost an average of twice as much as they did four years ago before the pandemic hit but are still considered affordable for Americans making a median household income even though salaried are only 63 percent higher now than they were then.
The Federal Reserve has not cut interest rates yet this year, but many experts expect they will do so before the end of 2024.