The cost of buying a home continues to reach dizzying heights in many parts of the country. That is especially true for first-time homebuyers, with the price of an entry-level home reaching $1 million or more in 242 U.S. cities, according to a new report from Zillow.
The typical starter home, which Zillow defines as a house in the lowest third of home values in each region, costs an average of $198,649. But in a record number of cities around the country, entry-level homes are now valued at $1 million or more.
A total of 26 states had at least one city where starter homes cost at least $1 million in April of this year. That is up from nine states in February 2020. California led the way with 105 cities where starter homes cost at least $1 million. Ironically, that figure is down slightly from last year, when 106 California cities had reached the million-dollar mark.
The New York City metropolitan area, which also includes parts of New Jersey and Pennsylvania, leads all metro areas with 63 cities where starter homes costs at least $1 million. San Francisco’s metro area is next with 37 cities reaching that mark, followed by Los Angeles with 33 cities and San Jose with 13. The Miami and Seattle metro areas both have eight cities that have crossed the million-dollar threshold.
Zillow reports that the lingering impact of the housing boom caused by the COVID-19 pandemic — coupled with the nation’s chronic housing supply shortage and historically low mortgage rates in recent years — have driven up home values to record levels.
In February 2020, just prior to the pandemic, Zillow found that 80 cities had starter homes costing $1 million or more. Five years later, that number had skyrocketed to 226 cities. This April, the number rose to 242.
In 2020, the list was comprised almost entirely of coastal states, with Colorado the only interior state with a city where starter homes had reached the million-dollar threshold. Today, Colorado, Illinois, Texas and Wyoming have more than one city on the list, while Georgia, Kansas and Missouri are among the states with one city.
“The pandemic reset the cost of buying a home, spreading million-dollar starter homes from a handful of coastal states to more than two dozen states across the country,” said Kara Ng, senior economist at Zillow, in a press release. “But while it may feel like a market of beer tastes at champagne budgets, those million-dollar starter homes are still the exception. More inventory, slower price growth and a narrowing rent-versus-buy gap mean buyers who are financially prepared are generally in better shape than in recent years.”
According to Ng, Northeast cities are joining the million-dollar club because of unsolved housing shortages. In contrast, Sun Belt markets have responded to increasing demand by building new housing supply, which is allowing price growth to moderate.
Ng contends that eliminating barriers to housing construction, such as restrictive zoning regulations, would be an immediate way to help increase home inventories around the country and help ease pricing.
