The New Normal: Million-Dollar Starter Homes

First-time homebuyers in 237 U.S. cities are finding that the typical starter home is priced at $1 million or more, according to the latest data from Zillow (NASDAQ:Z, ZG). Five years ago, before the pandemic reshaped the housing market, only 84 cities had entry-level homes at this price point.

Across the country, the typical starter home is valued at $196,611, but the pace of appreciation has been anything but uniform. Over the past five years, entry-level home values have jumped 54.1%, outpacing the 49.1% increase seen across all home types. Additionally, the median age of first-time homebuyers has reached 35, a year older than in 2019.

Where Are These Million-Dollar Starter Homes?

These high-priced entry-level homes aren’t spread evenly across the country. Half of all states now have at least one city where starter homes reach $1 million. California leads the way with 117 cities, followed by New York (31), New Jersey (21), Florida (11), and Massachusetts (11). Zillow notes that cities with the most restrictive housing regulations tend to have more $1 million starter homes—and also lower homeownership rates.

“Homebuyers are facing challenges on both affordability and inventory,” said Orphe Divounguy, senior economist at Zillow. “In hundreds of cities, $1 million is now the baseline for a starter home. But the market may be turning a corner for first-time buyers. Inventory is increasing, price reductions are becoming more common, and homes are staying on the market slightly longer—giving buyers more breathing room.”

Luxury Homes Are Also Breaking Records

While starter home prices continue to climb, the luxury market is also setting new records. Redfin (NASDAQ:RDFN) reports that last year the median luxury home price reached $1.18 million in Q2, marking an 8.8% year-over-year increase—the largest jump in nearly two years. By comparison, non-luxury home prices grew at a slower pace, rising 3.8% to a record median of $342,500.

Luxury home sales remained steady, increasing by 0.2% in Q2 of 2024, marking the third straight quarter of sales growth. Meanwhile, the non-luxury sector saw a 3.4% decline in sales, bringing volume to its lowest second-quarter level in a decade.

“The luxury market has been largely insulated from high mortgage rates, thanks to a strong pool of all-cash buyers,” said Redfin Senior Economist Sheharyar Bokhari. “Now that sales are stabilizing and more inventory is hitting the market, we may see a slowdown in luxury price growth in the near future.”

With both starter and luxury home prices reaching record highs, first-time buyers and high-end buyers alike are navigating an increasingly complex market. However, easing competition and a growing number of listings could provide some relief for buyers in the coming months.