Why it’s so hard to find starter homes in the US
The Disappearing Stepping Stone
First-time homebuyers may struggle to find adequate starter homes when the 2025 buying season begins this spring.
The homes that once gave Americans a stepping stone into real estate are disappearing, according to experts. While the exact definition of a starter home varies, they’re typically under 1,400 square feet. In 2023, just 9% of the new homes built in the United States were under that size, according to Census Bureau data. In 1982, it was more like 40% of new homes.
The Culprit: Restrictive Zoning Laws
Experts say that restrictive zoning laws found around the country are to blame. These laws are set at the local level and dictate what can be built where. These laws have increased the cost to build homes of any size, eroding affordability for buyers in the process.
“Many builders are not leaving money on the table,” said Sam Khater, chief economist at Freddie Mac. “They are just simply unable to build, or it’s become so expensive to build that they can only build high-end single-family and high-end multifamily.”
The Consequences of a Changing Market
From January 2020 to October 2024, home prices nationwide have increased over 52%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.
Homebuilders say they are contending with rising construction costs and limited availability of land in addition to government red tape.
“We do know that labor and materials have gone up about 50% over the last decade, but the cost of land has gone up two and a half times that,” said Selma Hepp, chief economist at CoreLogic.
A Shift in the Market
The death of the starter home sped up after the 2007-2008 global financial crisis as the homebuilder industry consolidated. The annual rates for new home construction remain well below those observed in the early 2000s and years prior.
With many homeowners locked in to their current homes with low mortgage rates, the supply of existing homes for sale remains low. Prices continue to climb in most parts of the country as mortgage rates hover near 7%. This dynamic is a massive challenge for the approximately 3 million potential first-time buyers in the U.S.
A Changing Demographic
“It is such an unusual market because we have an all-time low of first-time home buyers, but an all-time high of all-cash buyers,” said Jessica Lautz, deputy chief economist at the National Association of Realtors.
In 2024’s unusual market, the median age of the first-time home buyer climbed to age 38, an all-time high. In 1981, the average first-time buyer was aged 29, according to NAR.
Watch the video above to see why starter homes are increasingly hard to find in the U.S.
Conclusion
Finding a starter home in the US is becoming increasingly challenging due to the decline of small, affordable homes and the rise of restrictive zoning laws. With prices continuing to climb and mortgage rates hovering near 7%, first-time buyers are facing a daunting task. As the market continues to evolve, it’s essential to understand the root causes of this issue and work towards finding solutions to make homeownership more accessible.
Frequently Asked Questions
* What is a starter home?
A starter home is typically a smaller, more affordable home that serves as a first step in the homebuying process.
* Why are starter homes disappearing?
Restrictive zoning laws, rising construction costs, and limited availability of land are contributing to the decline of starter homes.
* How many potential first-time buyers are there in the US?
Approximately 3 million potential first-time buyers are in the US.
* What is the median age of first-time homebuyers?
The median age of first-time homebuyers is 38, an all-time high.
