The price of a first home in more than 100 cities and towns across the country is now above $1 million, according to new data from Zillow, a new sign of the housing market’s ongoing homebuying challenges.
“When home prices go up, people want the cheapest ones,” Orphée Divongay, senior economist at Zillow, told Yahoo Finance in an interview. “And as people want more first homes, the price growth rate for first homes has basically skyrocketed.”
According to Zillow, the average price of a new home nationwide is $196,611, making it affordable for households with moderate incomes. Zillow defines a new home as one that is in the bottom third of home prices in a given area.
However, over the past five years, prices for new homes have increased 54.1%, outpacing the 49.1% increase in all home prices over the same period.
Currently, at least 13 states across the nation have at least one city or town with a starter home worth more than $1 million. California leads the list with 71 cities, followed by New York with 11 and Washington with eight expensive home cities. Florida, Maryland and Virginia also make the list with at least one expensive home city.
“Delays in home ownership”
The ongoing housing crisis — soaring home prices, rising mortgage rates and limited inventory — is holding off many would-be buyers, making homeownership increasingly out of reach for younger Americans. Last year, the average age of homebuyers was 35, one year older than in 2019.
“People are putting off home buying because it takes time to save up and take the first step to buy a home,” Divongie said. “There are a lot of people out there who want to buy a home, and unfortunately, they’re tied down by the barriers to home buying.”
First-time homebuyers are the main group being shut out, according to Devongy: The National Association of Realtors reported that the percentage of buyers who were first-time homebuyers fell to 29% in June from 31% in May.
The price of a typical first home in more than 100 cities has reached $1 million, according to Zillow data, highlighting the continued difficulty of homebuying in the housing market. (Photo: Mario Tama/Getty Images) (Mario Tama via Getty Images)
The difficulty in home buying is due in part to the Federal Reserve’s efforts to curb inflation through tight monetary policy, with interest rates currently at their highest in 23 years. Rising mortgage rates are a notable example of how Fed policy has affected the economy.
But mortgage rates have been trending lower recently, dropping to their lowest level in more than a year as investors price in a Fed rate cut. Freddie Mac reported that the average rate on a 30-year fixed-rate mortgage fell to 6.47% from 6.73% last week.
The story continues
The Federal Reserve is scheduled to cut interest rates starting in September. Expectations of the Fed lowering interest rates have already lowered interest rates, helping home buying, but lower rates could put upward pressure on home prices again.
A key part of the equation is increasing supply: The pandemic has exacerbated the housing shortage across the country, but it was more pronounced in Boston, Sacramento and Portland, Oregon, according to a Zillow analysis.
Builders are accelerating construction to ease the housing shortage, but the millions of homes built in the past two years are not enough to fill the gap between demand and supply.
On the other hand, some expensive markets have strict zoning rules for new home construction.
“The most likely thing to happen in the short term is lower interest rates,” Karl Reichardt, a managing director and home construction analyst at BTIG, told Yahoo Finance in an interview about solutions.
“In the long run, the best thing we can do is have more supply.”
Dani Romero is a reporter for Yahoo Finance. Follow her on X Dani Romero TV.
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