- A starter home is typically the most affordable option for first-time buyers looking to purchase a house or living space.
- The cost of a starter home can vary based on location, with the median price in August 2024 being $250,000.
- The traditional 3-to-7-year stay in a starter home has extended due to market competitiveness and high interest rates.
- Choosing between renting, buying a starter home, or investing in a forever home depends on individual financial and life goals.
- While starter homes are becoming less common, they are still available in certain markets.
If you’re considering purchasing your first home, a starter home is a great entry point into real estate ownership. In general, a starter home is the most affordable housing option for a first-time buyer. These homes are typically smaller in size and come with a price tag that is more manageable compared to the broader housing market.
The concept of the starter home gained popularity post-World War II, providing affordable housing options for returning soldiers and their families. However, the landscape of starter homes has evolved over the years.
Today, starter homes may not necessarily be single-family houses with yards, especially in urban and suburban areas. Factors such as rising land costs, limited inventory, and changing buyer preferences influence the definition of a starter home in the current market.
“Starter homes have undergone significant changes,” says Redfin Senior Economist Elijah de la Campa. “What was once considered a starter home a decade ago may now be a small fixer-upper condo. The American Dream is evolving, with homeownership no longer limited to a house with a white picket fence.”
In this article, we’ll explore the concept of starter homes, their affordability, and the decision-making process for first-time buyers.
So, what is a starter home?
Historically, starter homes are defined as more affordable housing options that make homeownership accessible to first-time buyers. These homes are typically smaller in size and may have some compromises, such as location or fewer upgrades.
While starter homes used to be around 1,200 square feet with two beds and one or two baths, today, the price of the home often determines its classification as a starter home. The definition of entry-level homeownership can vary significantly by region, with homes needing renovation often priced more attractively for first-time buyers than move-in-ready options.
How much does a starter home cost?
Generally, the cost of a starter home is below the average home price in a given area. In August 2024, the median price of a starter home was around $250,000, with an average income of $77,000 needed to afford one. However, national averages and local market prices can vary significantly.
High demand from first-time buyers and investors, coupled with limited entry-level properties, has created a challenging environment for prospective homeowners. The average age of a first-time homebuyer in the United States has risen to 38, indicating the difficulty of entering the housing market.
“Many individuals may have the income to afford a starter home on paper, but other financial obligations, such as student debt, may hinder their ability to purchase,” explains Redfin Premier real estate agent Blakely Minton.
Starter-Home Affordability by Metro: 10 Most Populous Metros (August 2024)
Source: Income Needed to Afford Starter Home Declines
How long should I stay in a starter home?
The duration of your stay in a starter home depends on your individual circumstances. Factors such as family growth, job changes, and financial stability may influence your decision to move to a larger or more permanent residence.
Traditionally, homeowners stayed in starter homes for 3 to 7 years to build equity. However, the current market trend shows homeowners staying longer to avoid rising home prices and interest rates.
The “lock-in effect” is a significant reason for extended stays in starter homes. Homeowners with low mortgage rates are hesitant to sell and incur higher rates, leading to limited available homes. Nevertheless, the lock-in effect is gradually diminishing, allowing more homeowners to consider moving.
Starter home vs forever home vs renting
When deciding between buying a starter home, a forever home, or continuing to rent, it’s essential to consider your long-term goals and financial situation.
Is renting or buying better long term?
One of the advantages of buying a starter home is the opportunity to build equity, providing long-term financial security. Homeownership offers stability and potential tax benefits, unlike renting, which may involve rising monthly payments.
However, buying a starter home comes with initial costs like down payments and maintenance expenses, as well as the responsibility for repairs and upkeep. Moving may also be more challenging and costly for homeowners compared to renters.
Should I buy a starter home or forever home?
Choosing between a starter home and a forever home depends on your financial capacity and future needs. A starter home is more affordable initially, requiring a smaller down payment and offering manageable monthly mortgage payments.
While a forever home caters to long-term needs and aspirations, it often comes at a higher price. Starter homes allow you to start building equity sooner and can serve as a stepping stone to a larger property in the future.
Where can I find affordable starter homes?
If you’re seeking affordable starter homes, certain regions offer promising options. The Midwest, Texas, and Florida have homes priced below the national average, with job opportunities and land availability influencing affordability.
Cities like Harrisburg, Rochester, and Baltimore on the East Coast are attractive for first-time buyers due to their affordability and economic prospects. The Sun Belt region is also experiencing growth, driven by lower costs of land and labor.
Can I afford a starter home?
Several financing options are available for prospective buyers looking to purchase a starter home. Assess your financial situation, including income, savings, and expenses, to determine if homeownership aligns with your budget.
Getting pre-approved for a mortgage can help you understand your affordability. Consider different loan options, such as conventional loans, government-backed loans (FHA, VA, USDA), and down payment assistance programs, to facilitate your homebuying process.
Is it still possible to buy a starter home?
Despite challenges like high demand and limited inventory, purchasing a starter home is still feasible with strategic planning. Increasing housing inventory and a shift towards smaller, multi-family options are making entry-level homes more accessible to first-time buyers.
While the housing market continues to evolve, starter homes remain a viable pathway to homeownership, offering opportunities for individuals to enter the real estate market.