Starter home affordability is crawling back. These regions are best for first-time buyers

Americans who are looking to buy a home for the first time are seeing some gradual improvement in affordability, though the market remains far more challenging than it was before the COVID-19 pandemic – particularly in some parts of the country.

A new analysis by Realtor.com finds that the cost of a typical starter home has risen from $256,000 in 2019 to $344,000, while the share of affordable listings priced under $350,000 has fallen from 55% to 37.6% in that period.

Realtor.com senior economist Hannah Jones told FOX Business that the market for starter homes has changed “dramatically” since the pandemic, with shifts driven by higher mortgage rates and inventory limitations.

“Factoring in mortgage rates, the income needed to qualify has risen from $43,000 to $78,000, a jump that incomes haven’t matched, and monthly payments are up more than 80% since 2019,” she said. “Altogether, buyers are paying more for less and the squeeze is most severe for the bottom tier of earners.”

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Those dynamics have contributed to a rise in the age of the average first-time homebuyer to 40 years old, with Jones noting that the share of first-time buyers was only 30% a year ago – though it recovered somewhat to 35% in May.

“The profile has shifted toward higher-income households who can qualify at current rates, because lower-income buyers have largely been priced out,” she said.

“More households are pooling resources, living with parents longer to save, or relocating to more affordable markets. The practical effect is that today’s starter home buyer increasingly resembles the move-up buyer of a decade ago,” Jones said.

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The report noted that there are 220,000 more starter homes for sale compared with 2022, with prices down 4.2% from that period, so there has been improvement in the last few years after the pandemic shock.

Jones said that most of that change is due to new construction – much of which has occurred in the South – while homeowners with relatively low mortgage rates are largely remaining in place due to their reluctance to take on a higher-rate mortgage after moving.

“Builders in Texas, Florida, and the Carolinas drove the South’s recovery by bringing supply to market just as demand moderated,” she said. “Lock-in is still very much in play nationally, with almost 70% of outstanding mortgages at 5% or below. Life-event-driven turnover is happening at the margins, keeping the market cranking, but hasn’t meaningfully unlocked existing inventory more broadly yet.”

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Jones said that while the national picture for the starter home market is slowly improving, the outlook across various regions of the country varies widely.

“The South is the clearest bright spot, with starter home prices down 3.5% from peak and 170,000 more sub-$350K listings, driven by aggressive Sun Belt construction. The West has also seen real price correction, down 7.3% from peak, though gains are concentrated in markets like Phoenix and Denver rather than California’s coast,” she said.

“The Midwest remains the most affordable region but is losing that edge, with prices up 10% since 2022,” Jones noted. “The Northeast is the hardest story: prices up 12.6% since 2022, affordable listings down from 48% of inventory pre-pandemic to under 30% today.”