Buyers Increasingly Opt for Smaller, Older Homes
Starter homes, those smaller, newly built homes on the outskirts of town, have traditionally offered an affordable entry point for Americans looking to become homeowners. More recently, however, rising land and material costs, along with a chronic overall housing shortage, have made new "starter" homes much more expensive, even in lower-cost areas.
According to a recent report from property data provider Cotality, the average price of a new home as of April 2025 was around $430,000, making it out of reach for many buyers, and certainly first-timers. The result is a decline in new-home sales, which have been down by more than 20% each month in early 2025. Additionally, new homes now represent only 12% of all home sales, down from 16% in early 2024, as first-time buyers focus on smaller, existing homes as an alternative.
Buyers searching for starter homes are choosing smaller, existing properties
Approximately 70% of existing-home sales are for properties under the average 2,411 square feet of new homes built in 2024, according to U.S. Census Bureau data. That market share of existing home sales indicates that many buyers are foregoing extra space and the advantages and modern comforts of new homes to enter the market.
Even new homes are becoming smaller
For both homeowners and home builders, years of rising costs have changed the typical size of new homes. Cotality data show that the average size of new homes fell by 10 square feet per year over the last five years, while Census data indicates a 100-square-foot decline among new homes since 2021.
Regardless, affordable new-homes aren't necessarily easy to find. As of April 2025, the median price of a newly built home under 1,500 square feet was $320,000, according to Cotality.
Whether they're new or existing, starter homes have become much more expensive over the past few years
- Affordable Starter Homes Are Becoming Harder to Find: A study from 2022 shows that the majority of housing markets lack starter homes under $150,000.
- The $1M Starter Home Is Becoming More Common: As of April, there were 233 cities where "starter" homes cost at least $1 million.
- More Young Americans Are Abandoning the Starter Home Idea: With costs for starter homes rising, 66% of Gen Zers and 61% of Millennials say they'd rather wait out current market conditions and save for longer than buy a home in the immediate future.