What’s the average sale price of a starter home?

If you’re reading this, you’re likely either a first-time homebuyer or someone looking for a new place to call home that’s slightly more affordable. (Owning a house is, after all, part of the American dream.)

But lately, it seems like the dream is slipping away. In the early 2000s, finding a starter home—even a generously sized one—for under $200,000 wasn’t difficult in markets across the country. And it was pretty much the norm for first-time homebuyers to close deals below that threshold. 

Fast-forward 20 years. The situation has changed dramatically, with the average sales price of a starter home pushing some homebuyers out of the market. 

Here’s some of the backstory and why it should matter to you today.

The average sales price of starter homes in 2021

After the pandemic forced people to stay indoors (and put the brakes on people moving), the market sped up again in early 2021. First-time homebuyers were hopeful to finally close a deal this year. 

But it wasn’t that easy. According to findings published on Business Insider, only 2% of starter homes were sold below $200,000 (as opposed to half of these properties back in 2002). What made matters worse for middle-class buyers is that roughly 50% of starter homes were sold above $400,000

Some of you must be thinking: well there’s almost a two decade difference between 2002 and 2021…you cannot just ignore the inflation rate since then. 

True. But according to the CPI inflation calculator from the U.S. Bureau of Labor Statistics, $200,000 in January 2002 is equivalent to $308,000 in July 2021. Meanwhile, the average sales price of starter homes has doubled during this time. 

What about income levels?

Because of the rate at which home prices have skyrocketed in the last few years, homebuyers are finding themselves in the middle of a real estate crisis regarding their spending power. For instance, first-time homebuyers’ median income increased modestly up to $79,400 in 2018 from $75,000 in 2017. 

Sadly, that’s not enough to command larger mortgages or handle other expenses such as home inspections and repairs that come with buying a home. 

Is it still possible to buy an affordable starter home?

Yes, it still is if you pick the right time of year. Experts suggest that starter home inventory tends to increase during the fall, which is when prices usually drop. As mentioned earlier, there are homes (even if they are in minority) that are selling below $200,000. Forbes recently published a list of the most affordable cities for first-time homebuyers, with homes in Charleston, West Virginia, Augusta, Georgia, St. Louis Missouri and Detroit, Michigan coming in well under that price point. 

You could be one of those homebuyers!

Though prices of most starter homes remain on the higher side, the current real estate market has cooled off slightly as the national inventory slowly increases. And here’s some good news: According to CNBC, the average sales price of starter homes is expected to rise at a slower rate in the next few months compared to the last year and a half. 

Is renting still better than owning?

Judging by current statistics, some homeowners may consider renting as a long-term strategy and will give up on purchasing starter homes altogether. But as per the findings of Realtor.com, owning is still more affordable than renting in many markets—that is, in nearly 50% of the largest metropolitan areas in the United States. 

Depending on where you’re planning to buy your first home, weigh in your options carefully. Take into account any fixer-upper expenses, do your homework online (especially if you have greater flexibility regarding where you can move) and consider consulting an experienced agent who can help you make the best decision to suit your lifestyle. 

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