While entry-level homes are becoming increasingly difficult to come by nationally, a handful of affordable markets – predominantly in the Midwest – offer first-time buyers a healthy and diverse selection of entry-level homes.
So what exactly is considered a starter home? Realtor.com® Economists define this type of property as an apartment that is listed at or below 80% of its metropolitan area’s median list price for a given period of time.
The typical starter home is relatively small and has modest furnishings. It represents the first step on the property ladder, offering price-conscious first-time buyers an entry point into home ownership.
Nationally, the share of entry-level homes has shrunk from 38.1% to 36.2% of active inventory over the past seven years, even as the median price has increased from $260,000 to $340,000, according to a new report from Realtor.com.
In other words, there are currently around 21,000 fewer entry-level apartments available than in 2019, and they are more than 30% more expensive than before.
To identify local trends in entry-level homes, Realtor.com researchers analyzed listing data from 8,300 ZIP codes in the 100 largest U.S. metros and revealed where buyers can still find entry-level homes in balanced neighborhoods.
In the U.S., three out of five ZIP codes are mixed, offering a mix of homes priced below the market average alongside more expensive offerings suitable for trade-up buyers. More than 18% of the neighborhoods in the 100 largest metropolises are now predominantly single-family homes.
In 81 of these 100 metros, neighborhoods that offer both basic entry-level homes and more upscale options make up the majority of the market.
“The conclusion here is that most entry-level homes are not in a clear ‘entry-level’ zip code, but are in mixed or even commercial-oriented areas,” says Realtor.com’s senior economist Hannah Jones.
The Midwest Advantage
The budget-friendly Midwest and Rust Belt metros stand out in the data set for having the highest overall share of entry-level homes nationwide this year, with Toledo, Ohio leading the way with 42.1% of the inventory, followed by St. Louis (40.7%) and Detroit (39.8%).
“All three of these metros have experienced below-average price growth since 2019 and have a large, resilient base of entry-level inventory,” says Jones. “Toledo also had the highest share of entry-level homes in 2019, but Detroit and St. Louis both moved up the rankings.”
However, the proportion of starter homes in a metropolitan area only tells part of the story. It’s equally important for buyers to have listings spread across multiple neighborhoods within their budget with desirable features, such as: B. low crime rates, quality schools and pedestrian-friendly streets.
When looking for the best combination of high percentages of entry-level homes and neighborhood diversity, two markets stand out: Kansas City and St. Louis. According to Jones, the duo has more entry-level homes than the national average at 37.7% and 40.7%, respectively, as well as an above-average selection of entry-level ZIP codes.
There are 39 neighborhoods for buyers to choose from in Kansas City and 36 in St. Louis.
“Kansas City is a unique market with outlying areas that are still fairly close to each other and offer great value.” Rosemary River malea real estate agent Better Homes and Gardens Real Estate Kansas City Homestells Realtor.com. “We have highways that circle the entire metro to make it easy to get anywhere, while still being in such a central location in the United States.”
The average price for an entry-level home in Kansas City was $312,000 in August. According to Rieke Male, what you can realistically buy with your modest budget depends on the location. In Johnson County, this amount is enough for a two- to three-bedroom home, sometimes with a garage.
Within the city proper, a budget-conscious buyer would be best served by looking for one of the older, smaller bungalows scattered throughout the city’s historic districts such as Brookside Park and Waldo.
However, on the way north, buyers can still stretch their budget a little.
Equity and Growth in St. Louis
In St. Louis, overall housing affordability is the metro’s unique selling point and biggest selling point.
“What’s really unique about St. Louis is that you can buy an entry-level home at a reasonable price and actually use the equity to upgrade your home over time.” AJ Grahaman agent at Reece Nicholstells Realtor.com. “In some other parts of the country and even parts of Kansas and Missouri, that has become difficult, particularly after the coronavirus crisis when people were paying a lot more than they were asking for.”
With an average asking price of $231,000 for a typical entry-level home, Graham says entry-level buyers can purchase a better-than-expected property.
“It may be slightly modernized, has good bones and is structurally sound,” he notes. “It can be a house to raise a family in.”
One of the city’s most sought-after areas is the St. Louis Hills neighborhood, located 10 miles from downtown.
“You have the local coffee shop, corner food, local shopping and just cool local things that improve your overall quality of life,” Graham says.
In St. Louis County, buyers looking for attractive school districts should expect to spend more on a starter home or compromise on size and amenities.
Looking ahead, the inventory of entry-level homes in St. Louis is expected to expand.
Ron Kitchensmanaging partner of Greater St. Louis areaa local economic development organization, tells Realtor.com that new construction is planned on the city’s north side to replace homes lost in a tornado last year.
The city of St. Louis has already committed $120 million to clean up and rebuild the neighborhood.
Strategies for buyers
Two other Midwest hubs, Toledo and Akron, offer similar benefits to first-timers, albeit on a smaller scale.
Both have the highest rates of entry-level homes in the U.S. at 42.1% and 39.3%, respectively, but have fewer entry-level zip codes.
“Shoppers in these metros are likely to find plenty of affordable inventory, but the geographic distribution within the metros is much smaller,” Jones says.
Despite a national market that has become increasingly demanding for entry-level buyers, there are still affordable areas, particularly in the Midwest, provided buyers have clear priorities.
“One mistake is falling in love with the aesthetics rather than the actual house,” notes Graham. “Buyers want something modern, new and chic. They want an updated home where they don’t have to do anything except move the moving truck.”
The problem with these homes, according to the agent, is that they are priced at the top of the market for the area and may not offer as much room for growth from an equity perspective.
“I really love it when first-time buyers buy what I call ‘grandma and grandpa’s house’ where the structure is great, the mechanicals are sound and everything is well maintained,” he adds. “Maybe it just looks ugly. This can give buyers the opportunity to make cosmetic improvements and add value over time.”