The Cost of a “Starter Home” in 2024 Will Depress You

In 237 cities in the U.S., the average starter home costs $1 million, putting it well out of reach of many would-be first-time homebuyers.

A million-dollar home is no longer associated with luxurious amenities and features in 237 cities, including the San Francisco metro area, the New York City metro area, and the Seattle, Washington, metro area. The Zillow report defined a starter home as being “the lowest third of home values in a given region.” 

While the average cost of purchasing your first home nationwide in the U.S. is significantly lower, with a more attainable price tag of about $196,000, the report reveals a worrying shift. According to Zillow, the average cost of starter homes has risen 54.1% just over the past five years. 

A “starter home” is supposed to be an affordable home that appeals to first-time buyers. This starter home is supposed to be more of a temporary stop-over — one they eventually move out of “when they have the funds to buy a larger place in the long run.” But with starter homes starting at $1 million in many cities, perhaps the term “starter home” has lost some meaning.

Cities in particular have struggled with housing affordability due to a lack of supply, and this year’s findings are particularly disheartening for young city dwellers. For first-time homebuyers in one of these cities, purchasing a million-dollar home means you’ll need at least a 20% down payment, or about $200,000. 

Your monthly mortgage payments can vary depending on how long your loan term is as well as the interest rate, but you’d need to pay about $5,996 per month for a 6% interest rate with a 30-year mortgage. In addition, you could spend over $700,000 in interest over the life of your loan. It’s easy to see why many people are entering the homebuyers’ club at a later age (35 last year, according to the report) than previous years.

Out of the 237 cities that made Zillow’s million-dollar starter home list, 117 can be found in California, followed by 31 in New York, 21 in New Jersey, 11 in Florida, and 11 in Massachusetts. Washington came in next with eight, Texas has seven, Hawaii has five, Connecticut has four, and Colorado has three.

For its June 2024 findings, Zillow used its lower-tier Zillow Home Value Index to come up with its list of cities. That data pool looks at the “bottom third of Zestimates” (aka Zillow’s estimate of a home’s market value) in those cities and takes the average of those Zestimates, and found that the “typical starter home value” was $1 million in 237 cities — the highest number ever. 

The report was shocking, as Zillow reported that there were only 84 such cities in 2019. In June 2023, for example, California only had 98 cities where that was the case, and only 53 the year before, demonstrating how much housing affordability has changed in recent years. 

In addition, demand was tough to keep up with in the aftermath of the pandemic and low mortgage rates, but builders have been adding new homes and pandemic-era rate locks have begun to expire. Plus, buyers had a spot of good news as mortgage rates dropped to 6.55%, the biggest drop in two years, just this week, and interest rate cuts may be on the horizon. So, if a million-dollar starter home isn’t in your budget, you might still be able to purchase your first home in one of these cities if you keep an eye on the changing market.