David Bahnsen, founder and CIO of Bahnsen Group, is examining the real estate market as young homebuyers struggle with the ongoing housing crisis.
Starter homes were once thought of as a smaller, but more affordable option for young families and first-time buyers looking to enter the property market.
That may no longer be the case.
A typical first home is now worth at least $1 million in 237 cities, the highest it’s ever been. Five years ago, only 84 cities met that criteria, according to new research from Zillow. Zillow defines a first home as one that falls in the bottom third of home values in a given area.
The U.S. housing market is “in a tailspin” and could remain so until 2026
Nationwide, first homes are worth about $196,611, making them “well within reach” for moderate-income families. But first-home values have risen 54.1% over the past five years, faster than the 49.1% increase recorded by the average U.S. home over the same period.
A home in Hercules, California, on August 16, 2023. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
Half of all states in the U.S. have at least one city where a typical first home costs at least $1 million. But more than half of those cities are in California, where 117 cities allow you to buy a first home for $1 million. New York comes in second with 31, followed by New Jersey with 21. Florida and Massachusetts round out the top five with 11 cities each.
There are a variety of driving forces behind the rise in house prices.
Mortgage calculator: See how much rising interest rates will cost you
Years of under-construction created a nationwide housing shortage, then soaring mortgage rates and rising costs of construction materials made the problem worse.
Rising mortgage rates over the past three years are also creating a “golden handcuff” effect on the housing market: Sellers who locked in record-low mortgage rates of 3% or less at the start of the pandemic are becoming reluctant to sell, further restricting supply and leaving eager would-be buyers with few options.
Homes in Centreville, Maryland on April 4, 2023. (Photographer: Nathan Howard/Bloomberg via Getty Images/Getty Images)
Economists predict mortgage rates will remain high for most of 2024, then Federal Reserve Still, interest rates are unlikely to return to the lows seen during the pandemic, and investors expect only one or two rate cuts this year.
Mortgage buyer Freddie Mac said Thursday Average interest rate for a 30-year loan It rose slightly this week to 6.78%, down from a peak of 7.79% last fall but still significantly higher than its pandemic-era low of just 3%.
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A majority of homeowners say they would be nearly twice as willing to sell their home if their mortgage interest rate was 5 percent or higher, according to a Zillow survey. Currently, about 80 percent of mortgage holders have interest rates below 5 percent.
