First-time homebuyers may struggle to find adequate starter homes when the 2025 buying season begins this spring.
The homes that once gave Americans a steppingstone into real estate is disappearing, according to experts.
While the exact definition of a starter home varies, they’re typically under 1,400 square feet. In 2023, just 9% of the new homes built in the United States were under that size, according to Census Bureau data. In 1982, it was more like 40% of new homes.
Experts say that restrictive zoning laws found around the country are to blame. These laws are set at the local level and dictate what can be built where. These laws have increased the cost to build homes of any size, eroding affordability for buyers in the process.
“Many builders are not leaving money on the table,” said Sam Khater, chief economist at Freddie Mac. “They are just simply unable to build, or it’s become so expensive to build that they can only build high-end single-family and high-end multifamily.”
From January 2020 to October 2024, home prices nationwide have increased over 52%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.
Homebuilders say they are contending with rising construction costs and limited availability of land in addition to government red tape.
“We do know that labor and materials have gone up about 50% over the last decade, but the cost of land has gone up two and a half times that,” said Selma Hepp, chief economist at CoreLogic.
The death of the starter home sped up after the 2007-2008 global financial crisis as the homebuilder industry consolidated. The annual rates for new home construction remains well below those observed in the early 2000s and years prior.
With many homeowners locked in to their current homes with low mortgage rates, supply of existing homes for sale remains low. Prices continue to climb in most parts of the country as mortgage rates hover near 7%. This dynamic is a massive challenge for the approximately 3 million potential first-time buyers in the U.S.
“It is such an unusual market because we have an all-time low of first-time home buyers, but an all-time high of all-cash buyers,” said Jessica Lautz, deputy chief economist at the National Association of Realtors.
In 2024′s unusual market, the median age of the first-time home buyer climbed to age 38, an all-time high. In 1981, the average first-time buyer was aged 29, according to NAR.
