The typical "starter home" is now worth at least $1 million in more than 200 cities across the United States, pricing more first-time buyers out of the housing market.
That is according to a recent report from real estate marketplace Zillow. In its analysis, Zillow defined a "starter home" as one that is in the lowest third of home values in a given region or area.
Nationwide, the typical starter home is worth $196,611---a value that is comfortably affordable for a household earning a median income. However, elevated mortgage rates and a shortage in the supply of homes on the market have brought the price of starter homes up by 54.1% over the past five years, the report noted.
"Home buyers are battling affordability and availability today. So much so that $1 million is the norm for a starter home in hundreds of cities," Orphe Divounguy, a senior economist at Zillow, wrote.
Where Are Starter Homes Worth $1 Million or More?
Throughout the US, there were a total of 237 cities where a typical starter home is $1 million. Five years ago, there were only 84 such cities.
A large majority of cities with $1 million starter homes can be found in California, with 117 such cities. California is the only state with more than 100 such cities. The other states with the most number of cities with $1 million starter homes are New York (31) and New Jersey (21).
Among metropolitan areas, the New York City metro had the most cities with $1 million starter homes at 48. Following closely are San Francisco (44), Los Angeles (35), San Jose (15), and Miami and Seattle, each with eight cities.
Home prices began soaring in mid-2021 through late 2022 after a sharp decline in mortgage rates during the COVID-19 pandemic spurred a homebuying boom and pushed more millennials toward homeownership.
The housing affordability crisis in the US came to a head after mortgage rates peaked at 8% in October last year. Since then, the market has started showing signs of cooling off. Mortgage rates have also dipped to 6.73% for the 30-year term, per figures from Freddie Mac.
READ NEXT: Younger Buyers Are Sacrificing Safety, Access to Healthcare To Afford a Home: Survey