A shortage of starter homes in the US that peaked in 2022 is starting to ease, though the recovery is uneven, while affordability has eroded, a report by News Corp's (NWS, NWSA) Realtor.com showed Monday.
Starter home price thresholds are defined as listings priced below $350,000 across the country, or below 80% of the area's median list price, according to the online real estate portal.
There are now about 300,000 fewer homes in the market priced under $350,000 than in June 2019, while the typical starter home costs $344,000, up from $256,000 seven years ago. The share of active national listings priced under $350,000 fell to about 38% from 55%, while the recommended minimum household income to buy a typical starter home jumped to $78,000 from $43,000 in 2019, according to the report.
"Higher rates have kept homeowners stuck in place, but we're finally seeing cracks in the lock-in effect," Realtor.com Senior Economist Hannah Jones said. "Every year, more owners hit a life event -- a new job, a divorce, a retirement -- that forces a move regardless of their mortgage rate, and that's slowly working supply back into the market."
Starter home prices declined in the South and West following supply gains, but continued to rise in the Midwest and Northeast, revealing a stark regional divergence in housing affordability, according to the report.
"The starter home story looks completely different depending on where you're standing," Jones said.
"In the South and West, builders spent the last few years chasing demand at the entry level, and buyers there are actually seeing more choices and better prices than they had two years ago," Jones added. "In the Northeast, that construction response never happened -- prices kept climbing even as the rest of the housing market cooled."
Despite recent inventory gains, home sales under $350,000 fell about 10% year over year in April and have declined 7.2% so far this year as elevated mortgage rates and strict income requirements continued to price out buyers, according to the report.
"The starter home market over the next five years looks like a slow, uneven normalization rather than a dramatic reset, as the lock-in effect gradually fades, inventory continues to build, and household formation patterns shift," Realtor.com said. "Younger, lower-income, first-time buyers without existing equity are likely to remain the most squeezed."
Price: $32.15, Change: $-0.27, Percent Change: -0.85%
