CNN —
The number of US cities where first-time homebuyers are faced with at least a $1 million price tag on the average entry-level home has nearly tripled in the past five years, according to new research.
A Thursday report from Zillow indicates that a typical starter home is now worth $1 million or more in 237 cities, up from 84 cities in 2019, underscoring America’s ongoing home affordability crisis.
“Affordability has been strained across the board,” Orphe Divounguy, a senior economist at Zillow, said. “We see the largest number of million-dollar starter homes in expensive coastal markets. We see them in markets with very low homeownership rates and we see them in markets with more building regulations.”
Zillow defines a “starter home” as being among those in the lowest third of home values in a given region. California, New York and New Jersey contain the highest number of cities with entry-level homes that carry an average million-dollar price tag, but half of all US states have at least one such city, the report said.
What is behind the price explosion?
Skyrocketing home prices, along with elevated mortgage rates, have contributed to a feeling of frustration among most Americans about the housing market. A majority of Americans — 76% — say it’s a bad time to buy a house, according to a May survey from Gallup.
It’s a problem, partly, of supply and demand: There is a shortage of homes for sale compared to demand, which has driven up prices.
Home prices jumped during the pandemic as more Americans, many of whom were newly remote workers, rushed to find homes offering extra space. Then, the Federal Reserve’s war on inflation caused mortgage rates to surge. In 2024, prospective homebuyers face an unpleasant combination of high prices and high borrowing costs.
All of this has added up to one of the most unaffordable housing markets in a generation, causing many young Americans to remain renters for longer than many would like. The median age of a first-time homebuyer was 35 last year, a year older than in 2019, according to Zillow.
The median price of a previously owned home in the US rose to $426,900 in June, the second consecutive month that prices reached a fresh record high based on data going back to 1999, according to the National Association of Realtors. In many cities, that median price is much higher.
To further complicate things for first-time buyers, the value of starter homes has grown at a faster pace than the average home. According to Zillow, starter home values have grown 54.1% over the past five years, while the average US home has increased by 49.1%.
Jeffrey Jenkins, a public policy professor at the University of Southern California, explained the reason for this disparity: There have been more potential buyers for starter homes and the supply is lower compared to larger family homes.
When costs rise, people turn to homes that are relatively cheaper, Divounguy said.
“Not just within their market. They also have tended to move to relatively more affordable markets,” he said. “That’s going to put more pressure on those homes and push their prices up faster.”
Finding an entry-level home with a price tag under one million dollars in the United States is certainly not impossible, though. The nationwide average price tag for a starter home is $196,611, according to Zillow. However, cities with more restrictive building regulations are more likely to have higher-priced real estate than the national average, said Zillow. Land in cities is scarce, and zoning restrictions breed even more scarcity.
There are some promising signs that the housing market may be turning a corner, though. According to a recent report from the National Association of Realtors, home inventory is starting to pile up, meaning that buyers may soon have more negotiating room. There were 1.32 million active listings in the US in June, a 23.4% jump compared to last year.
“We’re seeing a slow shift from a seller’s market to a buyer’s market,” said National Association of Realtors chief economist Lawrence Yun in a statement.
