A traditional stepping stone, starter homes are becoming more and more out of reach.
In the 1980s, the typical first-time homebuyer was in their late 20s, and 40% of new builds were considered entry-level homes. In 2019, only 7% of new builds were considered entry-level, and in 2024, the average first-time buyer was 38 years old—a record high.
Depending on your market, to attain one of these highly sought-after, small, no-frills homes, you would have to shell out about $1 million—the average cost of a starter home in 237 cities back in 2024—or perhaps closer to $196,611, the typical starter home’s worth, according to Zillow.
Nationwide, the median price of a single-family home is now $459,826. At a 6.5% mortgage rate, 75% of households would not be able to afford a median priced home, according to the National Association of Home Builders. Further, only 40% of households can afford a $300,000 home.
To comfortably afford a home, without the risk of becoming house-poor, a household needs to spend no more than 30% of their income on housing—a standard set by the federal government, which broadly considers people who spend more than that on housing “cost-burdened.”
RISMedia dove into the world of starter homes—what they look like in different metros, who is living in these entry-level homes, and how people can potentially house-hack their way into a starter home.
The vanishing starter home
It’s no secret that starter homes are dwindling. Not only are they harder to find, but they are gaining equity and becoming even less attainable for new buyers.
The majority of people in these homes—who are mostly boomers—are staying put. Accounting for 21% of the population, boomers make up 42% of homeowner households, locking up inventory and keeping these entry-level homes off the market.
So, with the pool of existing homes becoming smaller, that leaves buyers with newly built homes. In 2023, out of the 666,000 new single-family homes that sold, the median size was 2,286 square feet. The median price was $428,600, while the average sales price was $514,000, according to the U.S. Census.
And due to this shrinking pool of entry-level homes, some buyers may not be interested in the remaining options.
From firsthand experience working with buyers in the Atlanta metro, REALTOR® Tracy Lawrence told RISMedia that she doesn’t understand why more people aren’t willing to “start small and build up.” Particularly with young couples, she said, she has to remind them of the concept of building equity on their first home and then using that equity to move up with their next home.
“Why does everyone have to have their first house out be the house? I tell every young couple, ‘I promise you—you will not die in this house; I promise you this is not your last home,’” she said. “When you’re 25 – 30, this is not your last home—not in this day and age. It does not have to encompass everything you ever dreamed of.”
Though a single-family home, albeit a smaller one, is typically what comes to mind when thinking of starter homes, Lawrence often encourages buyers to think beyond that.
Townhomes and condos—often overlooked, she said—are good options for starter homes, and Lawrence recommends them to buyers, touting their lower prices and minimal upkeep.
Generally 5% – 7% cheaper than traditional single-family homes, condos are a good alternative to a starter home, but it’s a good idea to weigh out those savings against HOA and condo fees.
A small(er) no-frills home
To combat affordability issues, people are buying smaller homes. In 2013, 71% of renters applied for loans for homes larger than their rentals. In 2024, 36% of applicants sought homes with less square footage than their current rentals.
This increase in people buying smaller homes not only shows changing buyer priorities, but also suggests a housing market that’s becoming more difficult for first-time buyers to break into.
Along with people buying smaller homes, the prices of these entry-level homes are increasing—a trend that’s been taking place since before the pandemic.
December 2016 marked when prices fully recovered from the Great Recession. Since 2016, overall housing prices have increased 71%, or 6.9% annually, according to a recent Homes.com study. But “workforce” housing prices—homes priced in the bottom quartile—appreciated 91%, or 8.4% annually, since 2016. On the other end of the spectrum, upscale housing in the top quartile only increased 67%, or 6.6% annually.
Although home prices are on the rise across the board, it is telling how the largest price increases are coming from the homes in the bottom quartile of each metropolitan area.
RISMedia spoke with Melina Duggal, the senior director of market analytics at CoStar Group and Homes.com, to break down the numbers.
The metro that experienced the most drastic increase in workforce housing prices was Tampa, with a 214% increase since 2016. Following Tampa, other metros that saw price jumps in the bottom quartile were Las Vegas, Providence, Cincinnati and Columbus.
“The areas with the highest workforce housing home sales appreciation are often in the Sun Belt in metro areas like Tampa, Orlando and Miami,” Duggal says. “They tend to have high household growth driven by positive net migration and immigration, and have experienced strong income and apartment rent growth.”
Besides high population growth, which the Sun Belt region has experienced, Duggal said another possibility for these price increases is that certain markets have a lower starting price, leaving more room for price appreciation.
“The areas with the lowest workforce housing home sales appreciation were not concentrated in any geography, although many were in Texas,” she says. “While many of these areas—mainly those in Texas—had high household growth, they also tended to have lower income growth and slower rent growth.”
The ‘good enough’ home
A REALTOR® in the Detroit area, Jennifer Kinney explains that although price is one of the main factors when categorizing a house as a starter home, these entry-level homes are the ones you move into that perhaps need a little work but are good enough for the time being.
“It’s not turnkey; it’s not perfect-looking,” she says.
In her market in Michigan, Kinney has noticed that a lot of people listen to news about the housing crisis and shortages and apply that national news to their local area—not considering that certain regions, like the Midwest, are “easier to get into a home for less, and some of these can, arguably, be kind of like turnkey homes.”
These “good enough homes” are a way for the average person to potentially build wealth, says Kinney.
When she was 24, Kinney and her spouse purchased their first home together, a home that they then sold three years later for $35,000 more than they initially purchased it for.
“We earned some equity and that was like, ‘Whoa!’ We were young; $35,000 back then—since I’m 48 now—was a good amount of money,” she recalls. “And then we took that, and we bought a house in a more popular area, and we were able to then sell that house a couple years later at a $100,000 profit. And then we bought a house in Detroit, and if we were to sell it at the amount that we paid for it versus what it’s worth now, it is over double.”
Building equity through homeownership is a “theoretically passive” way to build wealth, says Kinney.
“Homeownership—for a very large number of average everyday people in this country who aren’t going to take the time to take a course and learn about stock markets, investing and day trading, or don’t have the money to do that—can be a way that people can build equity, build wealth,” she says. “It’s a long game and can maybe even build generational wealth.”
The double-edged sword of fixer-uppers
Experiencing the largest discount in three years, fixer-uppers sell for 7.3% less than other similar homes; houses that “need work” or “TLC” sell for about 8% less than expected. According to a recent Zillow study, this adds up to more than $28,000 in savings on a home’s purchase price.
Fixer-uppers can be appealing to first-time buyers because of the lower initial price of entry, said Amanda Pendleton, Zillow’s home trends expert, in a press release.
“However, buyers who are already stretching their budget to afford a home in today’s market may not be willing or able to spend more on renovations or repairs,” she said. “A remodeled home may come with a higher price tag, but a buyer would get to spread that additional cost over the course of a 30-year mortgage versus paying cash upfront to make similar upgrades themselves.”
According to the Zillow study, homebuyers are no longer flocking to these fixer-uppers but instead paying 3.7% more than expected, or an additional $13,194, for already-remodeled homes. Last year, Zillow researchers only found a 0.8% premium for homes with the listing keyword “remodeled.”
The fixer-uppers that were “once the bargain basement of the housing market” are increasingly becoming an option reserved for “cash-flush buyers who want to customize every inch of their space,” reads the release.
On the other end of the home improvement wheelhouse are necessary, and usually costly, repairs and routine maintenance.
According to Angi’s 2024 State of Home Spending Report, 61% of homeowners are concerned about affording maintenance or repairs in 2025.
The study found that 43% of homeowners reported increased stress related to home repairs and maintenance in 2024. More significantly, home projects emerged as the single most stressful budget category—ahead of healthcare, debt, savings, childcare, education and entertainment.
The report found that homeowners spent an average of $12,050 on home projects in 2014, down 12% from $13,667 in 2023—reflecting a reprioritization of spending, with essential upkeep and lifestyle-enhancing upgrades taking precedence over discretionary improvements.
From 2021 to 2023, total home projects grew by 4%, and total spending by 33%, according to NerdWallet, which studied Census data. The most expensive projects were kitchen additions and renovations, which averaged close to $43,000; projects, overall, cost about $6,200 each, on average—up from $4,800 in 2021.
Regardless of what people tend to prioritize in the home improvement realm, it will likely become costlier in 2025 due to tariffs.
Aside from getting at least three quotes from contractors, CEO of Unified Home Remodeling Steven DiMare offered the following advice to homeowners in light of the uncertainty.
“We’re recommending all homeowners sign a contract and get their projects started sooner than later just in case these tariffs do affect the materials,” he told Newsday. “The tariffs were put in one day, then they were put on pause, so you never know what could happen. It was like during COVID, when we were deemed essential, then not. It could cause confusion and price manipulation. It’s uncharted waters.”
Is house-hacking the answer?
Whitney Lumsden—a real estate agent in the Olympia, Washington, market—seems to think so.
For those unable to find a starter home, Lumsden encourages them to seek creative avenues.
Her No. 1 tip for first-time buyers looking for starter homes is to consider house-hacking. According to Zillow, more than half of millennials and Gen Z buyers place a high value on the opportunity to rent out a portion of their homes.
“You can buy a multifamily home, up to a quad-plex, under a single-family loan—not a commercial loan,” she said. “So for a lot of my clients, I have suggested ‘Let’s look at duplexes and triplexes, and that’s going to offset the cost; yes, you’ll have to be a landlord, or you can hire a property management company, but you’ll end up qualifying for more because you can utilize what the projected rent amount is, at 75%, to increase your prequalification approval.’”
Through house-hacking, Lumsden was able to help a family find a home within their budget.
Initially, this family qualified for $425,000, and, in the areas they wanted to live, not a lot of homes fit their criteria, recalls Lumsden. Ultimately, the buyers were able to close on a single-family home with an accessory dwelling unit (ADU) that could be rented. Based on the amount of rent they could collect from the ADU, the buyers were able to qualify for the $600,000 needed to buy the house.
“They’re paying less in their mortgage because of the offset cost of the rental income from that unit than they would have paid if they would have just gone into a single-family home by themselves—and they’re not sharing any walls. So that’s my suggestion to all of my clients,” she said. “There’s so many unique ways of getting into homes where you’re paying less.”