The number of US cities where first-time homebuyers are faced with at least a $1 million price tag on the average entry-level home has nearly tripled in the past five years, according to new research.
A Thursday report from Zillow indicates that a typical starter home is now worth $1 million or more in 237 cities, up from 84 cities in 2019, underscoring America’s ongoing home affordability crisis.
“Affordability has been strained across the board,” Orphe Divounguy, a senior economist at Zillow, said. “We see the largest number of million-dollar starter homes in expensive coastal markets. We see them in markets with very low homeownership rates and we see them in markets with more building regulations.”
A side effect of sky rocketing housing prices is the annual tax liability also goes up, so people on a low or fixed income may no longer be able to afford the home they’ve lived in for decades. It’s the same problem that happens when neighborhoods are gentrified.
Some localities limit the increase in taxable value to a fixed percentage, which can combat that. The taxable value of my home is something like 25% of the actual value.
What happens when you sell it?
New owner gets taxed based on what they pay for it, so they county will end up collecting more.
Which has the downside that it locks people into their current home because moving would mean losing their favorable rates.
Rising prices are bad for everyone.
Obviously it sucks if they have to move, but it’s hard to feel too sorry for people that have become incredibly wealthy…
Also, municipal expenses don’t scale directly with property values… So while local taxes are often based on home values, they are adjusted to the level that meets the municipal budget. If everyone’s house doubles in value one year, taxes stay the same, not double…
That’s just how life is in a society. Don’t fall for the stupid Prop 13 trap that ruined so much in California.
As long as people are selling and buying houses what’s the problem?
People aren’t selling, because their tax bill will 10x at whatever place they downsize to. The older generations are all living in 5+ bedroom homes with 1 or 2 people while young people are raising families in 1br apartments. It means that across the state communities are dying out and young people just aren’t having families anymore. On top of this, suburban sprawl is completely out of hand because all the people who bought before prop 13 was passed were living in the metropolises since they were working age. Now that they are retired they still live where the jobs are, and the young working people have to commute 2+hrs each way to get to their jobs.
The people with a 5 bedroom house could sell for so much money they wouldn’t care about the tax bill at the new place. Going from 5 bedrooms to two bedrooms means you could outright buy the new place and have 2 million dollars left over. At that point you’re crying into your Scrooge sized bank account about property taxes.
And if you’re worried about the people who bought condos or other small city homes staying there until they die, that’s the point. The entire point was to prevent people being pushed out of their homes.
It never stopped people from buying a smaller house or moving for new jobs. Not building enough housing to cover the natural rise in population is the reason we are here. Insisting that all new housing be single family detached housing in suburbs is why we’re here. Those are far more impactful things than the people who just never move.
They may not have much money left over after downsizing, however. In markets like California the value is almost entirely from the land. The comparative value of the house (even a 5 bed) is comparatively negligible. So a 5 bed on a small plot would cost almost the same as a 1 bed on the same plot. In Silicon Valley it’s really common to just buy a house and knock it down and rebuild, since the cost of building a new house is much less than the cost of the land.
It’s a genuine issue that the liquidity of the real estate market is impacted by this.
This is wildly incorrect in many cities, likely the ones the article of talking about.
Size has so little relevance to cost these days that there is no logical way to downsize. The mortgage doubles whether they sell and buy a house of the same size or one half as big.
Literally cannot downsize. By that I mean people will be in a house that’s 2500+ sqft and their mortgage might double moving to literally any house in the city regardless of size. Most people don’t actually want a (poorly made cheap pos) mansion twenty or thirty minutes further from civilization, but that’s all that’s legal to build.
"A Thursday report from Zillow… "
Fuck you Zillow! You are mostly at fault as to why the housing market is such shit
I’m wondering what a “starter home” is in this case.
For me that’d be about 40sqm and 150k €
Are people buying bigger homes than they need?
America is deeply obsessed with single family homes.
Most homes are 90 m² or larger. I’m in a medium sized city in the midwest and I have a 3 bedroom 130 m² home I got for 115€ but it’s already inflated in value in the last 15 months to 138€. I wouldn’t be able to afford the house I purchased 15 months ago, if I was house shopping now. And homes currently cost nearly double what they did in 2019.
It’s nearly impossible to find smaller homes in some areas of the US. I lucked out and bought an 800 sq ft home for my starter. I’m now in a 1600 Sq ft condo and it’s more room than my partner and I need. I’m hoping to downsize.
Starter home? This is a finisher home! A dwelling of gods, THE GOLDEN GOD
Nobody knows what a “starter home” is anymore anyway. Sellers play them all up through the roof anymore
If that’s even true, then that only means that most people can afford it. If nobody could afford it, then the prices wouldn’t be this high.
Corporations are buying up these houses faster than individuals and are pricing everyone out of the market. Then they offer them as rentals.
Someone paying the rents? Seems like it’s priced well then. This is how the free market works.
The “free market” has resulted in an average of 27 empty homes per homeless person in America.
https://www.self.inc/info/empty-homes/
Guess it isn’t priced well.
Well then the prices will correct themselves soon.
Based on what, your gut brain? This has been going on for years.
Based on supply and demand? Dense much?
Again- this has been going on for years. So when is it going to change? Tomorrow? Next year? Next decade? Next century?
Because people can’t afford houses today.
Telling me that the “free market” will solve it goes against what has actually been happening.
Essentially, you’re doing a “what are you going to believe, me or your own eyes?” and then insulting me when I pick my eyes over you.
It is how the free market works yes, the problem is that the free market itself is fundamentally broken
No it’s not broken just because things are expensive or unaffordable for some. You don’t have to like the system but that doesn’t mean it’s broken.
People going massively into debt isn’t affordable.
The areas where these starter homes are so expensive are areas with big disparities in income. Let’s look at the Bay Area, with all that tech money. There must be some people who can afford those prices. They are probably the ones making good money in the tech sector there. But then all their local services are provided by lower-paid people who can’t live there.
What happens when all those tech workers have kids? No matter where they send their kids for school, the teachers at that school can’t afford to live there and probably have 90 min commutes each way just to find one of those “starter” homes to live in. Ditto for the librarians, and bus drivers, and day care providers. Even the grocery store clerks can’t make enough to afford to live there.
This is the opinion of someone completely unfamiliar with the current situation of housing, how we got here, or quite frankly economics in general.
If the beginning and end of your understanding of this issue is supply/demand, you need… NEED to understand that you are objectively incorrect through lack of info. It is not a difference of opinion, you are flat out spittin some stup’ rn
I mean it is supply and demand, it’s just ignorance of the extreme imbalance that’s been created.
In the rental market there’s a cartel that needs to be dismantled but for buying homes it’s more to do with the vacuum that is wall street investing in those homes as rental properties.
Precovid houses I could afford with a weeks pay. Now it’s the whole pay check. Ridiculous. Wanna fix the birth rate fix this. I’m tired of being born at the wrong time for everything. It’s always some bs.
Precovid houses I could afford with a weeks pay. Now it’s the whole pay check.
You mean rent, right? Right?
No, it was ultra cheap in my region. Cheaper than rent. I begged my partner to by a house since it was HALF our rent for a decent 2014 built house with acres of land. But nooo they want to rent for life. Now that I finally convinced them otherwise I can’t afford it. It causes alot of resentment for me.
Your partner is a fucking idiot lol.
Sigh SO different goals caused by huge family trauma is the story of our relationship. In this case SO Family never maintained home and it looks like on it’s way to a Horders house. Literally Bathroom has been torn up for 10 years no work done outside demo. I can see literal floor below me in some parts. And if I offer to help one weekend to finish omfg watch that volcano. Its like reality TV with all the emotions. So the idea of having someone else maintain property was a plus in that traumatized mind. I could go on but I know I’ll reach text limit 6x.
You’re not making sense. What is the difference between “a weeks pay” and a “whole pay check”?
i agree is not clear, but i assume this person means 1 week pay vs full month salary to pay for mortgage, since the increased house prices and interest rates, a double whammy
Most people are paid bi-weekly, so every 2 weeks. So the mortgage cost pretty much doubled for them.
Just chiming in, most people in the world are not paid bi-weekly, monthly seems to be more of a default.
Oh sorry monthly. Price rose to 3x initial monthly value. So not quite my whole pay check but basically.
My mortgage payment is $1k at 3.5% interest. That is a 15 year mortgage that I have 5 years left on and the payment includes escrow (taxes and insurance) it was in the $850/$900 range but taxes and insurance have increased.
This is a 4 bedroom/2.5 bath with a 3+ car garage in a small town near a largish college town which is 15 minutes away.
We may be getting an advanced transportation research facility as well.
There are “better” communities in the surrounding area with much higher prices due to very high school rankings.
I hate you. Not really but we’re looking at 4 times that if we want to buy.
To be fair my home value has doubled and my taxes and insurance are only going to keep going up. If I sell I’ll be in the same boat as you and probably couldn’t afford to buy something else.
Most homes are simply out of reach for most Americans at this point, particularly if you live in a city. Even renting one is extremely expensive unless you move into a smaller town.
In the (rust belt here) midwest it’s almost reversed, homes in the rural areas cost much more than they do in the city. But our cities are car centric wastelands, where whole city blocks have been turned into parking lots.
Not to mention, smaller towns have much lower investment capacity in revitalizing century old infrastructure. There’s not enough appeal or added convenience for most to live in the middle of a 20-60k population center opposed to the privacy and space offered by smaller neighboring municipalities or outskirts. Footing the bill for renovation and raising rent to compensate, because almighty profit, eliminates their only clients. Housing’s fucked here all the way around.
P.s. any one got silly little 20k to pull me out of debt and give me a down payment on a starter home? 🙃
where did all this extra money come from to pay for these homes at these rates?
Working poor people. Money always comes from working poor people.
Large-scale investors buying up housing stock to rent out.
and where are they getting this extra money?
From rent
Rent payments
Rich people have money.
Rich people buy things us poor can’t. Or more of those things.
Rich people control the markets.
Rich people squeeze the lifeblood out of us peasants.
Only rich people can afford homes.
Rich people raise rents the servants must pay because being homeless is illegal.
EAT THE RICH
The best way to make money is to already have money invested. You take the proceeds from your earlier investments and invest in MORE assets.
In this case it’s real estate.
COVID and free money.
This smells like bullshit. I mean, if they define “Beverly Hills” as a city, I can see where it might be literally true, but I wouldn’t call even the cheapest house in Beverly Hills, Scarsdale, or Paradise Valley a “starter” home. There’s homes in the LA, New York, and Phoenix metros under $3-400k, if you’re not so choosy about the neighborhood.
From a canadian perspective, it sounds believable. About 10 year ago, you could get a new build on half an acre for 350k in my hometown. Today the oldest, run down, needs lots of renovations houses in the city on a quarter acre are going for over 400k. Those 350k new builds are easily into 700-900k range.
My biggest mistake in life was not buying a house fresh out of high school, but i was an “idiot” who looked at housing as a place to live, not an investment.
Im pretty old but I often think about how much better off I would be if I got an associate degree and some certs and then bought a house asap.
Yes and no. We own a house and we would love to move to another city, but since we live in a less desirable city, we can’t afford a house anywhere else. So if you don’t want to be stuck somewhere forever, be glad you didn’t.
Stupid millennials, should have saved up our lunch money for a down payment and spent recess house hunting. If only we had known we were supposed to start saving for retirement ten years before we were born…
Beverly Hills is literally a city. It is autonomous from the Los Angeles city government. It has its own government and its own laws.
And do please show me where the L.A. homes under $400k are. There weren’t L.A. homes that cheap outside of Watts when we lived there over a decade ago and I’m not even sure about Watts.
https://www.zillow.com/homedetails/20159-Cohasset-St-UNIT-9-Winnetka-CA-91306/68991194_zpid/ I’m sorry if that doesn’t fit your criteria for a “L.A. home,” but it is a place you can live, in Los Angeles, under $400k.
But that’s my point: some cities do not have any “starter” homes, at all, and defining a “starter home” as just the bottom third of every municipality is misleading bullshit. It implies that you need $1M to buy a home, and you don’t.
I agree that home prices have gotten crazy and unaffordable for many. I just want to have a realistic discussion of what that means so we can work on realistic solutions, and “you need $1M mortgage just to get your foot in the door” doesn’t help.
Oh, okay. Sure. If you want to live in the middle of the SFV and are okay with a 3-hour commute, it’s doable. I don’t think you realize how big L.A. is. It took me well over an hour to get from NoHo, which is in the SFV, to the guy I bought weed from in Canoga Park, which is next to Winnetka. But sure. Go out far enough and the homes get marginally cheaper.
I think we’re working with different definitions for ‘starter home.’ To me, ‘starter home’ is a real estate agent’s euphemism for ‘undesireable shithole.’ It is a home you expressly do not want to live in long-term. It’s temporary housing to build equity while you’re young, able to sacrifice living standard and comfort, and waiting to earn enough to upgrade to an actually desirable house.
From the goalposts you’re moving, it sounds like you think a starter house is somewhere affordable that you’d be willing to move into today and live indefinitely. And yeah, that’s probably going to be unavailable to most people. Most people don’t get to live in their dream house in an ideal neighborhood. Never have.
You do realize that you’re calling a house that costs hundreds of thousands of dollars an undesirable shithole, right? I think you’re proving my point.
What exactly is your point? Because my point is that undesirable shitholes costing hundreds of thousands of dollars is a more pressing problem, with different solutions, than not being able to find a house in Beverly Hills under $4M.
So your point had nothing to do with the article, which isn’t about $4 million Beverly Hills homes (which would be cheap for BH)?
It’s almost like we’ve let a ton of rich neighborhoods become cities so they don’t have to pay as much in taxes and they can prevent their staff from living near them. Unless of course they want to live in the “staff quarters”.
California?
(checks notes)
More than 100 of the 200 are in California. :) Next closest is New York at 31.
Seems like a mostly California problem.
this reminds me of the then they came for me thing. I remember when you could pick up a cheap home if you moved to like iowa. Its not as expensive but its not cheap like before.
Yep. I’m about as smack-in-the-middle as you can get and our home has doubled in value since 2016.
I bought my house a year ago and its estimated value has gone up 50% since then (and the estimate isn’t even aware of all the renovations I’ve been doing). It’s meaningless since I bought it for cash and I’m not going to sell it (mainly because I then wouldn’t be able to find any other house to live in for a reasonable price), but it’s kind of nice to know personally even if it is a symptom of an ongoing social calamity.
don’t your taxes go up if you valutation goes up? I personally want housing in general to just keep up with inflation so I can buy and sell as needed and basically have it hold the value I put into it. If it goes up faster then I might get priced out. Slower and I will lose what I put in.
don’t your taxes go up if you valuation goes up?
Not really where I live, anyway. Here, the total tax burden is determined and then the relative burdens are apportioned to individual homes based on their relative values. My home’s value went up because everything in this township went up by about that percentage. It is an incentive against improving your property, though, since if your house’s valuation increases relative to other homes, you will get hit with a bigger share of the total tax burden.
My township has an additional issue: the local school district is allowed to collect whatever total amount of money they want each year, not subject to approval by the council (and the school tax by far makes up most of the total tax burden). The only thing preventing them from raising the school tax to absurd amounts is that the school board is re-elected every year and too much school tax would get them voted out (most of them get voted out every year anyway, largely because of the school tax as it already stands). I’m not bothered by it because our schools are among the best in the state, and are the primary reason houses here are in such great demand. As a school bus driver, it’s also what pays my own salary.
Even then. If housing goes up faster than inflation and this is especially bad if its faster than your pay, then if you want to buy a place down the line and then sell your current place. Its going to be harder to swing or impossible.
Lol my pay goes up 2.8% per year and the Teamsters act like they won us a victory with that.
I didn’t look at the list, but housing prices are out of control in a lot of places, even if they haven’t hit that $1 million mark yet. A $750k starter home is just as absurd and out of reach for the vast majority of Americans.
We’re telling young people not to have kids and not to buy homes. And it’s everywhere, not just California.
Systemic issue, California is just showing the rot stronger than other places. It’s a growing issue for the whole country.
It’s not just a California problem. It’s a coastal city problem.
It’s not really shocking. The coast is valuable and limited. Living in an expensive coastal town isn’t really “starter home” material.
I mean, the coasts aren’t really that densely populated. If we build nicer cities there would be plenty of potential space.
Instead we build shitty suburbs and sprawl, which will always lead to awful, expensive cities
You wouldn’t say that if you saw what they’re selling for a million dollars. House built in the 1940’s with no maintenance except paying off the inspector not to condemn it? Yup that’s a million dollars. Falling into the ocean because of coastal erosion? It has an extra bathroom, it’s 1.5M.
I joke obviously but I’m not that far off either.
Actually, I’d be saying that even more.
People aren’t buying the house. They’re buying the location/
Texas is getting hit hard because it’s gone from sorry affordable to super expensive quickly.
Homes in my area have tripled in cost over past 5 years.
super expensive
There are very few places in Texas that are super expensive.
So you’re not from Texas then
Not from Texas, for sure. But I can say with confidence that there are very, very few places in TX that are “super expensive” compared to California, which was the subject at hand.
Good news and bad news…
Good news is everyone in the Middle Class is a millionaire!
Bad news is there is no middle class anymore.
Why would Trudeau do this to the USA
Pierre Poilievre… Probably
Look what biden has done to Canada!
We need to be liberated!
I hate that there are people who would agree with what you said.
20 years ago, my mother bought a house for just under 50k. Houses in my hometown, of the same rough location and type, now go for 4x that.
Insane that housing prices have outpaced inflation by such a ludicrous degree. It’s almost like the system is broken, the ultra-rich and corporations have found all the good tricks and loopholes and are exploiting them to the detriment of both ordinary citizens and the nation as a whole.
20 years is enough to double twice which would be 4x the price. That is how appreciating assets work.
What about income…?
Mine more than quadrupled in 20 years.
Try this: when you first started working, what were people with 20 years of experience making in your industry? How does that compare to what you make with the same 20 years of experience now?
My income has not doubled in the 10 years I’ve been working full time. But, more importantly, the amount of money people with 10 years of experience were making when I first started is not drastically different from what I am making with the same experience now.
Housing shouldn’t be an (in real-terms) appreciating asset. In the long run that just leads to feudalism.
Imagine if everything keeps appreciating for 200 years… now only cyborg Elon musk can afford to buy a house.
With finite land, it’s never going to not be appreciating.
I cannot recommend the book “Escaping the Housing Trap” highly enough. It talks a lot about the funding and financial products around housing and some of the fundamental flaws in the system. It’s quite easy to blame institutional owners and they’re certainly partly at fault, but it’s vastly more complex than that. It’s a really great scary read that genuinely had my mouth hanging open at times.
Tldr?
You can’t exactly just tl:dr an entire book, lol
