Hundreds of cities across the United States now have starter homes priced at a million dollars or more, as housing shortages push prices to record highs, according to real estate marketplace Zillow.
Roughly half of the cities were in California alone, followed by New York, New Jersey, Florida, and Massachusetts.
By metropolitan area, the New York City metro area, which includes parts of New Jersey and Pennsylvania, leads with million-dollar starter homes in 48 cities. It was followed by the San Francisco metro (44 cities), Los Angeles (35 cities), San Jose (15 cities), and Miami and Seattle (8 cities each). Zillow attributed the price spike to “a housing shortage that worsened over the pandemic.”
Zillow predicts that a “slightly more balanced market may be just over the horizon” which would benefit buyers. The company said that as the effects of rate lock ease and builders continue adding more supply, more homes are on the market.
“With more homes for-sale [sic], buyers have more time to weigh their options. Rising housing inventory is also helping the negotiating power swing in buyers’ favor as price cuts are at record highs for this time of year.”
Election, Interest Rates
The cost of a typical starter home nationwide was just over $196,600, a level Zillow says is “comfortably affordable for a median-income household.”But as starter home prices have risen by more than half in the past five years, many prospective homebuyers have put off purchases. Last year, the median age of a first-time buyer was 35, a year older than in 2019.
“Some of them say they’ll only buy a home if their candidate wins. Others are waiting because they feel the economy and housing market are shaky, and hope it will improve after the election. I am working with a few foreign buyers who are wary about investing any more money in U.S. real estate before they see who takes office.”
Post-election, mortgage rates will continue playing a key role in how willing buyers are to purchase a home. The mortgage rate on a 30-year fixed-rate mortgage has declined by roughly a percentage point since the peak in late October.
However, the rate remains more than double what it was three years ago. For mortgage rates to come down meaningfully, the U.S. Federal Reserve must bring down its interest rates.
To make matters worse, rates could be pushed up further. Fed officials had said during the agency’s June meeting that this was a possibility if inflation kept rising or remained elevated.
The longer the interest rates are kept at elevated levels, mortgage rates will also remain higher, making things tougher for buyers.