What Starter Home? Four Cities Where You Can Still Find One

The idea of the starter home was once as American as apple pie — but as prices and mortgage rates skyrocket, entry-level homes are becoming increasingly out of reach for a large swath of the population.

A recent study from Point2Homes.com in October found that renters in just four large US metros — Detroit, Tulsa, Memphis, and Oklahoma City — earned 100% or more of what they need to afford an entry-level home. Just a month ago, two more cities — Kansas City, Mo., and Baltimore — were on the list. And the price of an entry-level home was $200,000 or less in just 15 of the 50 largest U.S. cities.

“Once upon a time, nearly 70% of all new builds were starter homes — single-family houses with 1,400 square feet or less that started at $6,990. But that was in the 1940s,” says Point2Homes’s Andra Hopulele. “Fast forward to 1980 and that share fell to 40%. Then, in 2019, the U.S. Census Bureau reported that a mere 7% of all new homes were represented by the small, entry-level homes that are affordable for first-time buyers — and the prices aren’t even remotely similar.”

The definition of what constitutes a starter home is also changing, she says: “they used to be the small, super-affordable houses that a young person or family could buy in order to get on the property ladder. But now, they’ve come to represent simply the cheapest homes available in a market, or homes that fall within the 5th to 35th percentile price range.”

One particularly eye-popping statistic came out of the research: the median starter home in San Francisco costs as much as the median starter homes in the top 10 most affordable cities combined. The average renter household in the city by the Bay made just over $100,000 per year, but the amount a first-time user needs to comfortably cover payments there was $251,190.  Renters in San Jose, Los Angeles, and New York are also more than $100,000 short of the amount they would need to cover a starter home’s mortgage, and in Los Angeles, renters are making 70% less than the amount they would need to comfortably cover their monthly mortgage.

“As expected, the quickly rising interest rates took a large bite out of renters’ already limited buying power in America’s most expensive markets,” Hopulele said. “Even under this study’s ideal conditions (in which we assumed a 20% down payment was already covered), entry-level homes were still unaffordable for renters in the majority of large U.S. cities.”