The housing market’s affordability crisis continues to set questionable milestones, with the latest adding to the woes faced by first-time buyers.
The typical starter home, defined as the bottom third of homes valued in a given area, is worth at least $1 million in 237 cities, a record high, according to a report Thursday from Zillow. This is almost three times the pre-pandemic number of 84 such cities in 2019.
The lock-in effect in the housing market, where the Fed’s interest rate hikes and subsequent high mortgage rates have discouraged homeowners from moving, has kept inventory low.
In addition to weak supply, demand remains high, causing home prices to rise and denying potential buyers greater choice.
But the good news for first-time homebuyers is that most cities where homes starting at $1 million are the norm are concentrated in a handful of states, according to Zillow data.
While half of the states have at least one city with $1 million worth of new homes, nearly half of the nation’s cities are in California, which has 117 such cities. New York follows with 31 cases, followed by New Jersey with 21 cases, and Florida and Massachusetts with 11 cases each.
“Metro areas with the strictest building codes tend to be the ones with the highest number of new $1 million homes,” Zillow said. “They are also markets with lower homeownership rates.”
Nationally, the typical starter home is worth $196,611, up 54.1% over the past five years, the report shows. This exceeds the overall 49% increase in housing during the same period.
Meanwhile, earlier Zillow data showed that homebuyers now need to put down 35% to purchase a typical home, instead of the traditional 20%. The number of cities with a median home price of at least $1 million jumped to 550 from 491 last year.
But there are some signs that the housing market is becoming more favorable to buyers. Mortgage rates are falling, more homes are coming to the market and builders are adding to inventory amid expectations of a rate cut by the Federal Reserve later this year. Potential homebuyers are even exiting deals at record rates.
“With more homes for sale, buyers have more time to weigh their options,” Zillow said Thursday. “The increase in housing inventory also helped shift negotiating power in buyers’ favor, as price reductions hit a record high for this time of year.”
