Finance

Is the American starter home making a comeback? The answer is complicated

TheStreet · Jul 22, 2026 22:03 · 5 min read

Is the American starter home making a comeback? The answer is complicated — house-for-sale

Starter homes in the American housing market are still rebounding from the COVID-19 pandemic. The question is whether these houses will ever return to "normal."

When I was younger, I would hear the term "starter home" tossed around by my parents and teachers.

The starter home was a house they bought when they were younger. It wasn't the biggest or best house, but it provided them with their own space and allowed them to start building equity. That way, they could eventually sell it and use the earnings to make a down payment on their "forever home."

They had bought starter homes, and it was implied that I could one day, too.

Fast forward 15 or 20 years, and this simple tale doesn't feel simple at all. I reported on the housing market through the COVID-19 pandemic and have watched it struggle to recover ever since.

Due to the housing inflation resulting from the pandemic, paying less for starter home so you can get your foot in the door seems ... frankly, unrealistic.

New research from Realtor.com found that starter homes are still more expensive than before 2020. But the ship may finally be turning — starter home pricing and availability have improved since 2022.

Well, in some parts of the U.S.

Realtor.com breaks down starter home pricing and inventory

Let's be clear about what Realtor.com is referring to when it talks about "starter homes."

"To capture the starter home market, we focus on homes priced at roughly 80% of the area’s median, capturing the relative affordability of the lower end of the market," wrote senior economist Hannah Jones.

"We also track absolute dollar thresholds like the share of listings priced under $350,000 to reflect real-world affordability for households trying to qualify for a mortgage at current rates," she explained.

The real estate listings website used this methodology because, traditionally, starter homes have been geared toward two types of people: first-time homebuyers who aren't ready to buy their forever home and/or lower-income earners who can't yet afford the larger house they might want.

In 2019 (before the pandemic), the starter home price threshold was $256,000 nationwide. In 2022, it peaked at $359,000. Now, it has dropped by 4.2% since 2022, sitting at $344,000.

This is obviously still a huge jump from 2019 prices. But the good news is that the national housing market is improving a little bit for starter homes.

Your location plays a major role in the affordability and availability of starter homes, though. The starter home price threshold has decreased since 2022 in the West (-7.3%) and the South (-3.5%), but it's up quite a bit in the Northeast (12.6%) and Midwest (10%).

It's a similar story with starter-home inventory — and inventory is critical, because when there are fewer houses on the market, buyer competition drives up home prices.

In 2019, 55.6% of houses listed on the U.S. market qualified as starter homes. That share plummeted to 37.9% in 2022.

National inventory has increased since 2022 ... but only by 0.1 percentage point to 38%.

Again, housing inventory in the West and South has improved since 2022, but it's worsened in the Northeast and Midwest.

So, America's starter home offerings have started to improve. But the country still has a long way to go. Especially with inventory.

young-couple-with-red-for-sale-sign-on-a-house-fence — Starter home pricing and inventory is improving, but only in certain parts of the U.S. Cravetiger / Getty Images

Building more housing would lead to more starter homes

Essentially, the solution to the starter-home crisis is to build more homes.

The Northeast is the perfect example. Starter home prices have increased in this region since 2022, and inventory has lagged. This is the part of the country where it's probably the toughest to build more housing.

There isn't much developable land, strict zoning laws stop new construction, and a lot of the buyer demand is in bigger metro areas, Realtor.com explained.

The housing shortage is the main culprit behind the national home affordability crisis. When there aren't enough properties to meet demand, there's more competition among buyers. Competition drives up prices.

More Housing Market:

The 21st Century ROAD to Housing Act, which became law on July 11, could help with building more affordable housing units. It did away with the rule that manufactured homes must be built on permanent steel chassis. This could save thousands of dollars on the construction of a manufactured house — savings that could be passed onto the buyer.

There were roughly 300,000 vacant lots under five acres listed for sale in June, according to Zillow research. The company estimated that if a manufactured house was built on each spare lot, it would decrease the U.S. housing deficit by 6.3%.

And that's assuming you only build one house on each lot.

Capital gains tax also hurts inventory

There's another reason that inventory is low in America — not just for starter homes, but in general. And once again, it goes back to the COVID-19 pandemic.

Due to the housing inflation in the early 2020s, many existing homeowners gained a ton of equity. If they were to sell their homes now, the houses would sell for much more than they originally paid.

This sounds great until you factor in capital gains tax.

"Many want to avoid paying large capital-gains taxes on the sale of a long-held home that has appreciated a lot in value," wrote The Wall Street Journal.

If they don't move, then those houses don't go on the market for younger, first-time homebuyers.

"It's better for [elderly homeowners] to wait until death when the property will get a stepped-up basis and will get shielded by the generous levels of estate tax exemptions as the properties will become inherited by heirs," Corey Burr, senior vice president at TTR Sotheby’s International Realty, told TheStreet.

Currently, an individual is exempt from paying capital gains taxes on up to $250,000 in profit when selling a house, under the IRS Sale of Home Exclusion. Married couples filing jointly are exempt from up to $500,000.

Burr pointed out what he believes to be a fatal flaw in the capital gains tax exclusion: The numbers are the same nationwide. The IRS doesn't consider cost of living differences around the United States. Burr believes it should.

"This would result in much higher exemptions levels from capital gains and would immediately incentivize elderly Americans to sell their houses and move into more appropriately-sized properties," he said. "In turn, this would free up inventory for eager buyers who dream about these larger properties."

Tips for affording a starter home

Buy in a starter-home-friendly area. Not everyone can relocate to buy a house. But if you are interested in moving, consider going to the South, where starter home prices and inventory are improving. The situation isn't necessarily getting better in the Midwest, but Realtor.com research shows that starter home prices start lower here overall.
Find the right balance between the down payment and monthly costs. You don't need a 20% down payment. First-time homebuyers can often qualify for a conventional mortgage with just 3% down. However, a lower down payment results in a higher monthly payment. Make sure you can comfortably afford both.
Search for down payment assistance programs. Although roughly 80% of homebuyers qualify for DPA programs, only about 13% actually use them, according to a study by Realtor.com.
Buy a fixer-upper home. Buying a fixer-upper has become less popular, according to Keller Williams. People don't want to dedicate the time or money to huge maintenance projects. But buying a house that needs a little TLC could cost less. And if fewer people want to buy them, you could face less competition and avoid a bidding war.