The Blubber

Starter Homes Are Disappearing, Leaving First-Time Buyers Struggling

First-time homebuyers may face an uphill battle finding affordable starter homes when the 2025 buying season kicks off this spring.

The entry-level homes that once served as a stepping stone into homeownership are vanishing, industry experts warn.

The Shrinking Supply of Starter Homes

While definitions vary, starter homes are typically under 1,400 square feet. In 1982, about 40% of newly built homes in the U.S. fell into this category. By 2023, that number had plunged to just 9%, according to Census Bureau data.

Experts point to restrictive zoning laws as a major factor. These local regulations dictate what can be built where, driving up construction costs and making it harder to build affordable homes.

"Many builders aren’t leaving money on the table," said Sam Khater, chief economist at Freddie Mac. "They simply can’t build, or costs are so high that they’re forced to focus on high-end single-family and multifamily developments."

Rising Costs, Fewer Homes

Home prices have surged over 52% nationwide between January 2020 and October 2024, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.

Builders are grappling with soaring construction costs, land shortages, and government red tape that further limits new development.

"Labor and material costs have risen about 50% over the last decade, but land costs have surged two and a half times that," noted Selma Hepp, chief economist at CoreLogic.

The decline in starter homes accelerated after the 2007-2008 financial crisis, as homebuilders consolidated and construction rates never fully recovered to early 2000s levels.

A Market Squeezing Out First-Time Buyers

With many current homeowners locked into ultra-low mortgage rates, the supply of existing homes for sale remains tight. Meanwhile, mortgage rates hovering near 7% continue to push prices even higher, making it especially difficult for first-time buyers.

"It’s an unusual market," said Jessica Lautz, deputy chief economist at the National Association of Realtors (NAR). "We have an all-time low in first-time home buyers but an all-time high in all-cash buyers."

This shifting landscape has pushed the median age of first-time buyers to 38 in 2024, an all-time high. Back in 1981, the typical first-time buyer was just 29, according to NAR data.

As the 2025 housing market unfolds, affordability concerns and limited inventory will continue to challenge aspiring homeowners, leaving many wondering if the classic starter home is becoming a thing of the past.