The Average Costs of a Starter Home in 2018

How Much Would an Entry-Level Home Cost You?

starter home for a first time home buyer in the suburbs
••• Sales of entry level homes will dominate the real estate market in 2010. © Big Stock Photo

Are starter homes losing their luster? They might be. After all, some millennials are choosing to live with their parents longer to bypass starter home purchases and splurge on a property with a bit more value, according to USA Today. 

These entry-level homes have also lost some of their affordability. Starter home prices have increased by nearly 10 percent from the first quarter of 2017 to the first quarter of 2018, according to Trulia data. Additionally, the available inventory of starter homes has decreased year over year, dropping by 14.2 percent. 

When compared to 2012, the year Trulia began tracking this data, starter home prices have increased almost 58 percent, the amount of square footage has decreased 2 percent—dropping from 1,211 to 1,187 square feet—and inventory has been cut nearly in half. 

"Starter homes have become scarcer, pricier, smaller, older and more likely in need of some TLC than they were six years ago when Trulia began monitoring housing prices and inventory," the report reads. 

So if you're trying to enter the market as a first-time homebuyer, should you still consider a starter home purchase? Well, that depends on multiple considerations. 

What Determines the Price of a Starter Home? 

There are several factors that determine a home's value, including the climate of the local market; the neighborhood the property is in; the age and condition of the house; the size of the house; among other things. 

If you think the price per square foot helps determine a house's price, think again. Appraisers don't factor in the price per square foot when assessing home values.

Starter home prices vary widely across the U.S. Here's the median list price of starter homes in 10 major metropolitan areas, based on Trulia data: 

  • Atlanta, Georgia: $107,667 
  • Boston, Massachusetts: $294,933 
  • Chicago, Illinois: $112,350 
  • Dallas, Texas: $143,300 
  • Los Angeles, California: $389,933 
  • Miami, Florida: $173,000 
  • New Orleans, Louisiana: $104,950
  • New York, New York: $227,967 
  • Portland, Oregon: $269,998
  • Tucson, Arizona: $128,167

How to Find Deals on a Starter Home

It's still possible to find an affordable starter home—you just have to be 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 could also come through alternative methods, such as a short sale. This type of home purchase occurs when the seller's mortgage lender agrees to accept a mortgage payoff amount that is lower than the remaining balance on the seller's existing loan. 

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. 

Is It Worth the Investment?

Considering that starter homes aren't as move-in ready as they used to be—more than 1 in 10 starter homes are now labeled as fixer-uppers—is buying one of these homes a worthwhile investment? 

To answer that question, you'd need to get an accurate picture of how much home you can comfortably afford. A commonly cited rule of thumb says you should purchase a home that is worth 2.5 to 3 times your gross annual income. For example, if you earn $60,000 every year, the homes you can afford to buy fall between values of $150,000 and $180,000, according to this rule. 

The median list price of a starter home is $180,931 as of Q1 2018, according to Trulia, whose data also show that 41.2 percent of income is needed to buy a home at that price. Buyers needed just below 37 percent of their income to buy a starter home in Q1 2017.

Before you buy a starter home be sure you understand how move-in ready the home is prior to you committing. If you have to dedicate thousands of dollars just to get the property in a good-enough shape for you to live there, it may not be worth the trouble. 

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