The starter home, entry level home or fixer upper home, however you want describe it, has become non-existent for much of the home buyers across the country.
The typical starter home sold for a record $243,000 in June. That’s up up 2.1% from a year earlier and up more than 45% from before the pandemic. In 2019, the cost was $166,500.

Data from Redfin tells us the following, “A first-time homebuyer must earn roughly $64,500 per year to afford the typical U.S. “starter” home, up 13% ($7,200) from a year ago. That’s due to the one-two punch of higher mortgage rates and higher home prices.”
The monthly mortgage payment needed to purchase one of these homes has more than doubled over that same time period.
Of the starter homes that were purchased in May, 36.6% were purchased in cash. That is the same percentage of starter homes that were bought with cash as back in May 2014, when starter homes were priced just over $100,000, not $243,000.

So what has happened?
First this from Redfin.
Real estate investors are buying up a sizable chunk of today’s affordable homes. A record 41% of investor purchases were small homes–those with 1,400 or fewer square feet–in the first quarter. That’s up from 37% a year earlier.
“Many house hunters searching for an affordable place to call home for themselves and/or their family are out of options, especially in more expensive parts of the country,”
“As prices for the most affordable homes continue to climb and rates remain elevated, it’s becoming more true that you have to be wealthy to buy a home–especially if it’s your first one. That’s why we’ve seen the share of affordable homes going to cash buyers, either individuals or investors, tick up: Because they’re the only ones who can afford them.”
Cash buyers also have another advantage. They don’t have to pay high mortgage rates, meaning it’s ultimately less expensive for them to buy homes, deepening the wealth gap in the country.
If you zoom out a bit, homes under $400,000 went from almost 60% of homes in 2018 to 37% of homes today.

It now doesn’t matter whether homes are new or existing. Existing homes cost just as much as new homes.

For a higher level view of home sales by price, see this from
. “About 12% of new homes sold were under $300K in June 2023. This is up from 2022, but down from around 80% in 2002. In general, the under $300K bracket is going away (inflation has pushed prices higher).”
Starter homes have been squeezed out. Homes that were in the $200s have now gone up into the $300s and so on.
To illustrate just how strained the overall demand is for homes, there are 600,000 more realtors than there are homes for sale right now.

The competition in the starter home arena is fierce. No other area of the housing segment has this wide range of buyers. In addition to the young 20-30 year olds just starting out or starting families, you have;
Investors/Flippers
iBuyers
Downsizing Baby Boomers
Airbnb/Vrbo/Vacation Rental hosts
Builders looking to tear down to build bigger homes.
The local mom and pop who want to have rentals.
They all compete over this shrinking slice of the housing market supply. Is there anyone not competing for starter level homes?
This has made it harder for the younger people starting out to get into a home. That’s evident by this chart which shows only 33% of 30-year-olds owned a home in 2022 versus 53% in 1982.

So does the starter home come back?
It’s looking highly unlikely, minus a housing crash where prices reset and fall say 30%. And to be honest a housing crash of that magnitude has such a small probabililty of even occurring. Even if it did, a 30% fall from these levels still doesn’t bring starter home prices back to 2019 price levels.
But what about demand? Demand is driving the housing bus. It has been driving the bus since the pandemic. And demand is still robust and has yet to show any signs of letting up.
There is no looking back at history to see how this may play out. With the rise of remote work, Airbnbs, investor and even institutional led buying, this has added another wrinkle to housing and especially starter level homes. The more popular or appealing your city or area of the country, the harder it will be to find a starter home. Putting starter homes on the path to being extinct for most shoppers.
The Coffee Table ☕
I read 12 Things That Look Less Impressive the Older You Get and couldn’t help but agree with most all of these. Certain times you comes across an article where you find yourself nodding in agreement, this was one of those. Yikes, maybe I am getting older!
The post 100 Tips for a Better Life by
was sent to me by a subscriber of Spilled Coffee and I found some excellent gems in it. I bet if you read this list there will be some that jump out to you as well. A very good list!This weekend I watched Guy Ritchie’s The Covenant. Staring Jake Gyllenhaal, this movie was based upon the relationship between an interpreter and a solider in the Afghanistan war. The interpreter saved his life and then the soilder risks his life to save his. I saw this movie really as a tribute to the relationships that are formed with soldiers and interpreters in war. One of the better war pictures I have seen in a few years.
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