The Average Price of a Starter Home Across the U.S.

A small two-story starter home
•••

Mableen / Getty Images

Starter homes might be losing their luster, partly because millennials are approaching homeownership differently from the way previous generations did. However, it's not entirely by choice. The National Association of Realtors (NAR) reported that the median price of homes purchased by first-time homebuyers was $215,000 in 2019. That is a 5.5% increase over the median price of $203,700 from 2018. Such rising prices and larger student loan debt have made it more difficult for young professionals to save enough money for a down payment on their first home.

It is more common for millennials to rent or live with their parents longer before buying their first homes. When they do buy, they often skip the starter home and move into something nicer where they plan to spend more time.

There is no fixed definition for what constitutes a starter home, but it is generally considered to be a house with a price on the low end of the market.

Key Takeaways

  • With home prices steadily rising over the past decade, it's become increasingly difficult for young homebuyers to afford even a starter home.
  • Incomes have not increased on pace with those rising prices, making home ownership even more challenging for many millennials.
  • Short sales, foreclosures, and fixer-uppers may be affordable starter home options, but be sure you factor in the repair costs.

Affordability

Income levels have not kept pace with rising home prices. The median income for first-time homebuyers in 2018 was $79,400, up from $75,000 in 2017. The increase in median household income suggests that stricter financing qualifications and an increase in home prices will result in shutting more low-income buyers out of the market.

Finding the Best Deals

It's still possible to find an affordable starter home if you are willing to do some legwork. Starter home inventory has an established trend of increasing during the fall months, which could provide some home price relief.

Your entry-level home also could come through alternative methods, such as a short sale. This type of home purchase occurs when a seller's mortgage lender agrees to accept a mortgage payoff amount that is lower than the remaining balance on the seller's existing loan. These opportunities, however, are rare and generally can be found only in a buyer's market.

Another option is to purchase a real estate owned, or REO, property. Banks come into possession of these types of homes via foreclosures. Because they'd rather not hold onto these properties, they might be willing to part ways with an REO property at a discount.

Be sure to work with a reputable real estate agent in either case.

Buying Wisely

Starter homes aren't always move-in ready. Many are considered to be fixer-uppers, which is understandable, since their prices are on the lower end of the scale. So, when buying a home, it's important to consider repair costs in addition to whether or not you can afford the down payment and the mortgage payments.

For example, if you earn an income of $50,305 and buy a median-priced home with a 20% down payment, your monthly mortgage payment would be about $898 based on an interest rate of 2.625% in September 2020. Multiply those mortgage payments by 12 months, and that amounts to about 21.5% of your income. Can you afford significant home improvements on top of that?

If not, it might be smarter to buy something cheaper that will allow you to afford to invest in repairs or renovations. In a best-case scenario, the repairs you make will increase the value of the home by more than their cost. If your mortgage payment is too high, and you can't afford the repairs, you run a greater risk of the home losing value in the market.