Is There Still Such a Thing as a Starter Home in This Economy?

by EV Atlanta

With home prices steadily rising in recent years, many people are beginning to wonder whether starter homes have become a thing of the past. Well, the good news is that starter homes still exist. However, they may look a lot different now — and much more expensive.

According to a Freddie Mac study released during the pandemic, the share of starter homes among all new construction declined from 40% in the early 1980s to around 7% in 2019. In 2020, only 65,000 new entry-level homes were completed.

What’s the Definition of a Starter Home?

A starter home is usually the first property a person or family can afford to purchase. It tends to be smaller and less expensive, and can be a condo, townhouse or stand-alone structure. Most people live in these starter homes for two to five years until they see a return on their investment and save up enough to purchase their forever homes.

Missy Derr, real estate advisor with Engel & Völkers, defined a starter home as an opportunity to move on to the next home. “It’s a vessel for financial stability that can render itself as the stepping stone to purchasing the next larger, better situated and equipped home, so it may not be as large as you want and may not be in your dream area,” she explained.

Do Starter Homes Still Exist Today?

Yes, starter homes still exist, but the idea of buying an entry-level home that quickly appreciates in value so you could sell it in a few years seems to have gone out the window. In other words, while the definition of a starter home hasn’t necessarily changed, these properties are more challenging to find and less affordable than they were decades ago.