For decades, a starter home — a small and less expensive residence — was the first step in homeownership. First-time home buyers invested in what they consider to be a short-term dwelling and a stepping stone toward a more permanent residence in a few years. When their family evidently outgrew the smaller home, they’d decide to sell and hope to see a return on the investment.
The bad news: Starter homes are hard to come by these days. With increasing interest rates and limited housing inventory, is it worth investing in a starter home? We tapped three real estate experts, including pros at Zillow and Angi, to better understand the changing real estate landscape.
“True starter homes are scarce for first-time buyers today,” says Jenna Stauffer, agent for Sotheby’s Realty. “The move-up market just doesn’t exist like it used to. Between high prices, interest rates, taxes and insurance (a lethal combo), it makes upgrading tough.”
“The concept of the starter home has evolved significantly in recent years because of affordability challenges,” adds Orphe Divounguy, Zillow’s senior economist. “When mortgage rates were near 3 percent, most home buyers could break even and start building equity in their home within a few years.”
Previously, buyers could confidently settle into a starter home, move on once they had outgrown it and use their profits to upgrade to their next property. Mortgage rates have since doubled and now sit above 6 percent. “Those who buy will have to commit to a home for at least 7 to 9 years before that decision pencils out financially — even longer in pricey coastal metro areas,” says Divounguy.
People in the U.S. are living in their homes for much longer.
One reason starter homes are less available: Baby boomers are aging in place and driving the homeowner tenure to rise. According to a 2023 Redfin report, the typical U.S. homeowner has spent 11.9 years in their home — which is up from 6.5 years two decades ago.
“People’s view of how long they’re planning to live in a house has changed,” says Angie Hicks, co-founder of Angi. “It’s a combination of how hard the home buying process has become to begin with, and the rising interest rates.”
First-time buyers are putting more thought into location and size, and analyzing potential for future renovations, with the expectation that they will stay longer. Amid high interest rates and limited housing inventory, 67% of homeowners express a preference for renovating their current home to better meet their needs rather than moving, according to Angi’s 2024 State of Home Spending report.
First-time home buyers are getting older.
Older first-time buyers are more likely to hunt for a forever home than younger buyers in previous generations. “The median age of a first-time home buyer is 35 — an age when they’re more likely to be building their careers and starting their families,” says Divounguy. If buyers need to spend upwards of a decade in their home to see a return on investment, they’re hunting for a home that’s the right fit for them now and 10 years from now.
Starter homes are increasing in value.
Reality is home prices are rising — even faster in starter homes. “Nationwide, the typical starter home is valued at $196,611, which remains affordable for a median-income household. However, the value of starter homes has increased by 54.1% over the past five years, outpacing the 49.1% increase for the typical U.S. home,” says Divounguy.
Still, home buyers have a chance in 2025.
Despite the challenges, real estate pros think there’s hope for first-time buyers. “The housing market is becoming more balanced, so buyers have more options, more time, more discounts and more bargaining power,” says Divounguy. “Plus, mortgage rates have dipped to the lowest point they’ve been all year and buyers have new tools to track when rates fall even further.”
Although at one point it seemed the younger generations weren’t interested in homeownership, Hicks says there’s been a mindset shift: “Millennials and Gen Zers are becoming homeowners, and still view homeownership as positive and super important.”
Alyssa Gautieri (she/her) is the associate lifestyle editor for Good Housekeeping, where she covers all things home and interior design. Prior to joining GH in 2022, she wrote for publications including ELLE Decor, Chairish, BobVila.com, Unique Homes Magazine and LODGING Magazine, in addition to crafting product copy for home brands like BrylaneHome and VIGO Industries.
