Starter home Dreams Slipping away? Million-Dollar Markets Surge in 2025

The American dream of owning a starter home is becoming increasingly elusive as the number of U.S. metro areas wiht starter homes priced at $1 million or more has nearly tripled as 2020.A March 2025 study by zillow reveals that 233 cities now have starter homes valued at $1 million or higher, a important jump from just 85 cities in 2020. This surge reflects the lingering effects of pandemic-era price growth, making it harder for first-time buyers to enter the housing market.

What Defines a Starter Home in Today’s Market?

zillow defines starter homes as properties within the lowest third of home values in a given region. While the national average price for a starter home is $192,514, the proliferation of million-dollar starter homes underscores a growing affordability crisis. This trend is notably challenging for young adults and families just begining their homeownership journey.

Did You Know? The median existing-home price for all types of housing in April 2024 was $407,600, up 5.7% from a year ago, according to the National association of Realtors (NAR).

the 30% Rule: An Outdated Guideline?

Financial experts have traditionally advised adhering to the 30% rule, which suggests spending no more than 30% of gross income on housing costs [[SOURCE]]. This rule encompasses loan principal, interest, property taxes, and homeowners insurance. However, with rising home prices and stagnant wages, many homeowners find themselves exceeding this threshold.

Housing costs with a mortgage include:

• Loan principal
• Interest
• Property taxes
• Homeowners insurance

The Income Needed to Afford a $1 Million Home

Purchasing a $1 million home with a 20% down payment and a 6.75% interest rate would result in a monthly payment of approximately $6,314.11. To comfortably afford this, adhering to the 30% rule would require a monthly income of $21,047.03,or an annual income of $252,564.40.

The Growing Home Affordability Gap

The disparity between rising housing costs and stagnant wages has created a significant affordability gap. In May 2025, the housing cost-to-income ratio reached 34.75%, according to Investopedia’s housing affordability data. This means that many homeowners are spending a disproportionate amount of their income on housing, leaving less for other essential expenses and financial goals.

Pro Tip: Explore government-backed mortgage programs like FHA loans, which require lower down payments and have more flexible credit requirements.

Were Can You Still Find Affordable Starter Homes?

Despite the overall trend, some cities still offer relatively affordable starter homes.Recent market analyses indicate that cities like Charlotte, Houston, and Hartford provide discounts on starter homes and condos compared to the average local property [[1]]. In Texas, the typical starter home price falls around $217,000, which is higher than Texas’s median starter home price, but much more affordable than some of the state’s other major metro areas [[2]].

Strategies for First-Time Homebuyers

First-time homebuyers need to research housing costs and mortgage rates thoroughly to secure the best possible deal.Obtaining mortgage quotes from multiple lenders can lead to significant savings on mortgage payments.Additionally, exploring different neighborhoods and considering smaller properties can increase affordability.

The Bottom Line

The starter home market presents significant challenges for prospective homeowners. Pandemic-era price increases and rising mortgage rates have made it difficult for wages to keep pace, leading to an affordability crisis. Though,with careful research,strategic planning,and exploration of available resources,first-time homebuyers can still navigate the market and achieve their homeownership goals.

What strategies are you using to navigate the current housing market? What advice would you give to first-time homebuyers?